Volatility Spillovers Between Crude Oil And Stock Markets:Evidence From China And The United States

The crude oil market has great influence on the stock market,especially after the financial crisis,the correlation between the crude oil market and the stock markets is increasing.Therefore,the study of volatility spillovers between crude oil market and stock market is very important for energy policy makers,market participants,portfolio diversification and energy risk management.Firstly,this dissertation studies the spillover effect(total spillovers and directional spillovers)of return and volatility between crude oil market and sino-us stock markets,using the spillover index methods of Diebold and Yilmaz(2009,2012).Secondly,the asymmetric spillovers between crude oil market and sino-us stock markets is studied.Then,the volatility spillovers and asymmetric volatility spillovers of crude oil market and sino-us stock markets are studied under markov regime-switching framework.In addition,we study the frequency spillovers(short,medium and long term)between crude oil market and sino-us stock markets,using the variational mode decomposition(VMD)method.Finally,we study the volatility spillovers among crude oil market,US stock and China sector stock markets.(1)For the full sample spillovers table of volatility and return between crude oil market and sino-us stock markets,we can see that only crude oil market is a net contributor,while sino-us markets are net recipients.The directional spillovers of crude oil market to US stock market is larger than that to China stock market,which shows that crude oil risk has more influence on US investors than that on Chinese investors.After the financial crisis,the total spillover index of volatility and return between crude oil market and sino-us stock markets have increased significantly.(2)There exists an asymmetric spillovers effect between the oil market and stock markets and that during the most of our sample period,negative shocks drove volatility spillovers.Therefore,international investors,portfolio managers and policy makers should pay more attentions on negative shocks(“bad news”)than positive shocks(“good news”).The asymmetric directional spillovers of individual markets are our focus.We can see that the values of the directional spillover asymmetry measure for the oil market are negative during the majority of the sample period,furthermore,we can see that the magnitude of the directional spillover asymmetry measure for the oil market is larger than that of the sino-us stock markets,which indicates that the pessimistic mood about the oil market is larger than that about the stock markets.(3)We investigate volatility spillovers and asymmetric volatility spillovers between oil and stock markets during two regimes(i.e.,regime 1,a low-risk regime during non-crises(moderate times)and regime 2,a high-risk regime during crises(intense times)).The results show that during regime 1,the net spillovers are positive for both crude oil and US stock market,indicating that they are net contributors,while during regime 2,Chinese stock market is the only net contributors,which is the exact opposite.In addition,we notice that there are two significant differences:(1)the magnitude of asymmetric volatility spillovers during regime 2 is larger than during regime 1.(2)bad volatility spillovers and good volatility spillovers appeared in turn,which indicate that during regime 2,good volatility spillovers have begun to emerge.(4)The total spillover indexs are mainly driven by the medium-term component,followed by the long-term component,while the short-term component is the smallest.The impact on the system of the shocks that create future uncertainty in the oil and stock markets will intensify in the next few days(or more accurately,in five trading days,or in one week),resulting in a strong medium-term spillovers effect.The impact of the crude oil market and the sino-us stock market is mainly the medium-and long-term impact,and the abrupt increase of the crude oil tax from the United States may have some medium-and long-term impact on the China's economy.Rashly raising taxes on crude oil from the United States could have some medium-and long-term effects on China's economy.The trend chart of the return of the crude oil market under different frequencies shows that the crude oil market is a net spillover contributor during the most of the time,and the oil market dominates the transmission of the frequency information.The long-term China stock market is a net spillover contributor for most of the sample period,which shows that the China stock market has a long-term influence on the crude oil market and the US stock market.(5)We can see that the net spillovers of the energy,materials,industry,consumption,telecommunications and public utilities sectors are all positive,while the net spillovers of the optional sectors,medicine,finance and information sectors are negative.The directional spillovers from the crude oil market to the financial sector is the largest,the energy sector is the second,and the consumer sector is the smallest,which means the oil market has the biggest impact on the financial sector,followed by the energy sector,and the consumer sector is the weakest.The financial attribute of the crude oil market is stronger than the commodity attribute.Through the robustness test,the crude oil market's financial attribute accounts for the proportion to surpass 60%.In addition,the study can be used to assess the impact of China's oil product pricing reform on 27 th March,2013,and we can conclude that with the introduction of this policy,the impact of the crude oil market on various sectors in China had been largely eliminated,but the policy's effectiveness continued until about the end of 2014,after which it largely lapsed.For the industry and the materials sectors,the effectiveness of the policy has been shorter.This suggests that this policy become less effective as the oil market changes and needed to be adjusted,which can provide policy makers with decision support.