Volatility Spillovers Between Global Oil Prices And Stock Market Returns In China

China has become a net importer of oil since1996and its oil consumption surpassed Japan for the first time in2003. Since then China has become the second largest consumer of oil in the world, only second to the United States. China’s oil imports reached203.8million tons in2009and China’s foreign trade dependence has already exceeded50%. In2010, China’s oil imports reached more than2million tons with foreign Trade Dependence being more than55%. So China’s Dependence on oil is already more than the United States and Europe. China’s economic is closely related to the oil market, and the demand for oil will continue to increase in the future, but China’s domestic oil production is limited. The automotive industry, the air transport industry, the petrochemical industry will develop more rapidly. The trend of increased dependence on foreign oil will not change. The shocks of oil price on the development of China’s economy may be inevitable. With the continuous improvement of the level of China’s opening to the outside world and the financial capital market continues to mature, more and more investors attach importance to the impact of energy prices on the stock market in China. Oil price volatility will cause changes in the production and operation of enterprises in oil-related industries. The discounted value of the future cash flow can be used as a representation of enterprise value, so it is likely there is some connection between oil price volatility and China’s stock market as well as some of the industry index.The existing empirical studies on volatility spillover mainly use multivariate GARCH models. Multivariate GARCH models have some disadvantages. It has too many parameters and has the convergence problem of the estimated results. With the increase of the band of estimated parameters, the results are more sensitive to the choice of the initial value, and it’s vulnerable to the impact of numerical algorithms. So the results are not guaranteed to be the global optimal solution. In order to avoid the uncertainty of asymptotic distribution of the maximum likelihood function, this paper use cross-correlation function to test the volatility spillover effects between global oil prices and stock market returns in China.The empirical results show that no significant spillover effects exist between global oil and stock markets as a whole. Although results show no significant information spillover between Chinese stock market as a whole and the oil price, it does not mean the same results with those industries closely related to the oil market. Based on whether the oil and related petroleum products is the inputs or outputs in the industry, competition in the industry, industry concentration and the ability to transfer oil price shocks to consumers, The effect of oil price volatility on different industries is significantly different. After testing between global oil prices and14stock sectors, we find significant spillover effects from global oil prices to eight stock sectors:oil&gas sector, basic resources sector, travel&leisure sector, automobile and parts sector, industrial supplies and services sector, industrial goods&service sector, personal and household goods sector, the utility sector. To other sectors, there is no spillover effect.