The Research Of The Volatility Spillover Effect Between The Price Of The International Crude Oil Futures And The Snare Price Of The Domestic Energy Sectors

After the global financial crisis of 2008, the world wild economy has entered into recession. With the continuous growth of all unstable factors, the crisis has caused substantial impacts on the development of global market. Due to the international spread of uncertainty, the volatility spillover effect among global financial markets, which is also the question of information transfer, has become the main focus of many scholars. As the society is becoming information-based, the volatility spillover effect appears to be very distinct in all markets. Therefore, it is believed that the research of internationally comparing the volatility spillover effect among global financial markets, can not only quantify their interaction, but also enhance their capabilities of defensing financial crisis.With the constant development of the domestic economy, the consumption of energy has been steadily increasing. Meanwhile, the consumption of energy becomes more dependent upon import.2014, the total amount of imported crude oil has reached 0.31 billion tones, which forms 60% of the overall consumption. Those figures clearly illustrate that the international crude oil market has vast influence on the domestic energy industries. Shanghai and Shenzhen energy sector is the key reflection of the domestic energy market, including petroleum, gas, coal and many giant energy corporations. It comprehensively indicates the development of the domestic energy industries, which is also considered as the key index of the macro-economy. The current pricing mechanism of crude oil is based on the supply and demand in petroleum futures market. At present, there are three important crude oil futures contracts, which are the West Texas intermediate (WTI) crude oil futures contracts, the British North Sea Brent crude oil futures contracts and the Dubai acidic crude oil futures contracts. The trading prices of those three crude oil futures contracts are often referenced in news reports on international crude oil spot prices. Among the three futures contracts, WTI is the most traded commodity futures in the world. The price of WTI crude oil futures is used as a benchmark in pricing both producing and selling petroleum in North America, it is also considered as one of the standard prices in the world crude oil market because of its mobility and price transparency.In order to explore the volatility spillover effect between the price of international crude oil futures and the share prices of the domestic energy sectors, the research paper selects the prices of WTI futures from the New York Mercantile Exchange (NYMEX) as the representative of the prices of international crude oil futures, choosing the stock index of coal industry and the petroleum and petrochemical industry from the Citic primary industry index as the representatives of the share prices of the domestic energy sectors. Through VECM model, Granger test of causal relationship, variance decomposition, impulse response and some empirical methods, the research paper explores the interaction between the price of WTI futures and the stock index of the domestic coal industry, the interaction between the price of WTI futures and the stock index of the petroleum and petrochemical industry.Through empirical methods, the research paper has reached the following conclusion:The volatility spillover effect occurs between the price of WTI futures and the stock index of the domestic coal industry. The price of WTI futures occupies the dominant status in the correlation, which is corresponding to the influence of the international market and the domestic market status. The volatility spillover effect also occurs between the price of WTI futures and the stock index of the petroleum and petrochemical industry. The price of WTI futures still occupies the dominant status in the correlation. Comparing with the stock index of the domestic coal industry, the stock index of the domestic petroleum and petrochemical industry presented greater influence when interacts with the price of WTI futures. This situation is consistent with the industry relevance, and the market status of the world’s second largest oil consumer and importer. Through the above analysis, it is reasonable to conclude that there is a long-term equilibrium relationship existing between the price of international crude oil futures and the share prices of the domestic energy sectors. Within the volatility spillover effect, the price of WTI futures always occupies the dominant status. After the empirical analysis, this research paper summarizes with three strategic recommendations:Firstly, it is recommended that the government could enhance the domestic crude oil reserve in order to moderate the impact of international crude oil market volatility on the domestic energy industries. Secondly, accelerating the pace of constructing the market of domestic crude oil futures is another way to enhance its influential power over the pricing mechanism of the international crude oil. Thirdly, it is also recommended to actively stimulate the circulation of the domestic energy spot goods market.