The Impact And Spillover Effects Of Global Oil Market

As an important raw material in modem industry,crude oil has been widely used in almost all industries and its price fluctuations are vital to global economic activities.However,since the global financial crisis of 2007-2008,the volatility of crude oil prices has increased dramatically,and the comovements between global crude oil and other financial markets has become strong,making the oil price uncertainty become a global uncertainty.The existing literature about the effects of the international crude oil market focuses on the single market and is based on historical price data.Few studies investigate the spillover effects of global oil markets on multiple markets or explores the information transmission from perspective of future market expectations.This paper first sorts out the information transmission mechanisms between the international oil market and various markets such as macroeconomics,stocks,natural gas,non-energy bulk commodities,and exchange rates,and then adopt rolling window causality tests,structural vector autoregressive models,and complex networks methods to empirically investigate the effects of global oil prices and volatilities on prices or volatilities of natural gas,non-energy commodities and U.S dollar exchange rates.By using both historical price data and implied volatility data deprived from option markets,this study provide newer empirical evidence.This paper obtains several main findings as followings.(1)Chapter 4 investigates the volatility relationship between crude oil and natural gas markets from 2007 to 2015.In general,we find that there are no volatility dependencies between these two markets after 2007,which is consistent with price independencies documented in Batten et al.(2017).However,we observe significant causality relations from oil to gas in put options in a minority of our sample.Further,the causalities can be decomposed into short-term and long-term relations,which might be explained by a series of influential events.(2)Chapter 5 investigates the impact of global oil shocks both on the returns and volatilities of the Chinese commodity market index and three commodity sectors from May 1997 to August 2016.We identify the different causes of oil shocks by using a structural VAR model analysis.Our empirical results suggest that the returns of China's Commodity Index and agricultural sector,non-ferrous metal sector,and petrochemicals sector respond differently to the four oil shocks.Among these shocks,after the 2008 Financial Crisis,the effects of oil shocks caused by changes in the oil supply and global economic activities on returns are insignificant and negligible,while the oil shocks caused by changes in the specific information of the oil market,such as OVX shocks and residual oil price shocks,significantly affect the commodity returns.Moreover,we observe that,the returns of China's commodities respond negatively to the OVX shock,while the realized volatilities respond positively.We also find the strongest explanatory power of the OVX shock to the variations in both the returns and realized volatilities of China's commodities,which demonstrates that the OVX shock plays an important role in the influence of global oil market on China's commodity markets.(3)Chapter 6 adopts the Diebold and Yilmaz spillover index and rolling window analysis to quantify the dynamic linkages among returns and risk measures of the oil and six major foreign exchange markets for the period from August 2005 to December 2015.Our empirical results reveal that there is a strong total interaction among returns and risk measures of oil and FX markets.And the pairwise net spillovers show that CNY is the net receiver from the crude oil as well as all other currencies in the network,while EUR is the net transmitter from other markets.Moreover,the rolling-window analysis documents the dynamic spillovers between oil and FX markets,which shows that the clear time-varying features of the linkages are correlated with specific events.Additionally,we observe that,the spillovers from CNY to oil and other currencies encounters a sharp increase after"8.11" reform in RMB exchange rate,indicating that international influence of CNY is growing rapidly after the reform.Based on the above theoretical and empirical analysis,this paper has obtained several implications.First,in order to obtain the pricing power of crude oil,China needs to accelerate the progress of building its oil futures market.Second,China needs to establish a new policy framework to prevent the multiple risk contagions of global oil market.Last,containing important future information,the crude oil volatility index(OVX)deserves more attention from investors and policy makers in China.