A Study On Oil Price Volatility

Recently, the degree of dependency on import oil in China has been increasing greatly, since 1998, Chinese oil price has been in the phases of attending the world's oil price system, and the severe international oil price volatilities will certainly translate to domestic market, cause great influences to Chinese economy. Thus, studying the price volatility rules and mutual relations of the international and domestic oil markets will contribute to oil market risk supervision and policy establishment.The thesis combines qualitative analysis and empirical study. Discusses the influences caused by oil price volatility to economy, analyses the main factors that caused oil price volatility, brings forward oil price volatility formation theory, adopts GARCH models to depict the two markets' oil price volatilities, uses Hamao risk spillover model, Johansen co-integration test and VEC model researches the oil price volatility "spillover effect" and long-term mutual relations between international and domestic markets.The main points of this thesis are as follows: the oil price volatilities show certain clustering and continuance, international oil price volatility amplitude is bigger, and responses quickly to external impact, while the domestic responses slowly and lag in phase, behaves faintish in amplitude; there are certain risk "spillover effects" between the two markets, and the international oil price volatility has absolutely leading effect to the domestic market; long-term co-integration between the two markets is prominent, but they have different short-term volatility processes. Although China has established the rules that domestic oil price changes along with the world, yet the domestic oil pricing is mainly controlled by the international market, China could only negatively accept but could not control oil price volatility essentially. Therefore, deepen reformation, complete oil market price mechanism, make sound oil strategic reserve system, positively participate in oil futures trading are feasible policies to safeguard Chinese oil market development and economic security.