Research On The Volatility Spillover Effects Between Domestic And International Crude Oil Markets

As government continues to implement pricing principal in line with international prices, the relationship between domestic and international oil markets will be strengthened. Once turbulence appears in international oil markets, the fluctuation of international oil prices will be transmitted to our country, causing impact to domestic economy. The volatility transmission in different markets is called"volatility spillover effects". We can realize the situation of international oil markets better by testing volatility spillover effects between oil markets,which has important consulting value to importing and exporting oil from international markets and constituting domestic oil policy to our government.This paper adopted ARCH/GARCH model with spillovers, in which the mean and variance fitted values are incorporated as regressors in the appropriate mean and variance equations of the ARCH/GARCH model under consideration and their significance is tested, to research the volatility spillover effects between domestic and international crude oil markets.In the empirical research part of this paper, firstly, the feature of volatility in domestic and some main international markets was analyzed. The results indicated that there existed significant volatility clustering ,GARCH effect and leverage effect in the revenue rate sequences of WTI,Brent and Daqing crude oil markets. But there was no volatility clustering in Saudi Light oil market.According to the different features of volatility of each crude oil markets, then, this paper adopted VAR model,ARCH/GARCH model with spillover and impulse response functions to uncover the volatility spillover effects between the domestic and some main international crude oil markets. The results indicated that there existed significant unilateral volatility spillover effects from WTI and Brent to Daqing crude oil market, but the volatility spillover effects from Saudi Light oil market to Daqing market was not significant, by contraries, there was significant volatility spillover from Daqing market to Saudi market.At the end of this paper, the author gave the economic explanation to leverage effect and volatility spillover, and gave policy advices about crude oil pricing principal of China and how to reply to the fluctuation of international oil prices.