Research Of The Spillover Effects Form The International Oil Market To China’s Stock Market

Crude Oil as one of the most important energy in the world, which is known as"the food of modern industry","economic blood", affect the nerve of the world, is theimportant strategic resources for the world economic development, military securityand political stability. as the basis energy and chemical raw materials of the modernindustrial society, it has penetrated into all aspects of the national economy, plays animportant role in the national economic development.This paper first introduced the important position of oil in the world economyand the the national economy, and summarized the outbreak of the oil crisis in the20th century, and several major economic crisis that brings great impact on theeconomy, Thus leads to the research significance and the innovation of this article.After combing and summarizes the existing academic research results by domesticand foreign scholars on the issue. Involved industry the article will be divided into theoil production industry, oil alternative industries and oil used industries by the theory,then the paper will respectively analyzes the oil market transmission mechanism tothe stock market from three paths including the real economy, financial marketlinkage and the extreme behavior of virtual market. The path based on the entityeconomy’s influence on the stock market including income/cost effect, substitutioneffect and effect of inflation, exchange rate effect; The path based on the financialmarket linkage’s influence on the stock market including portfolio theory, theory ofnoise trading, herding, etc; The path based on the extreme behavior of financialmarkets mainly include political factor, natural factor.In empirical terms, this paper continues the previous theoretical analysis,from thewhole and industry level, put west Texas oil futures price index in the United Statesand China’s Shanghai composite stock price index and the classification of all industrypart of the secondary industry price index as the research object, study the meanspillover, volatility spillover and the extreme risk spillover from international oilmarket to Chinese stock market.Based on the path of real economy, financial market linkage, this paper use dailydata from March1,1996to December31,2013as a sample, With two variablesVAR-GARCH-BEKK model to study the mean spillover effect and volatilityspillover effect from international oil market to China’s industry and the overall stockyields. The results show that, there doesn’t exist mean spillover effect from international oil market to China’s overall stock yields, but there is volatility spillovereffect between them; From industry level, there is a positive mean spillover effectfrom international oil market to China’s oil production industry. there is a positive andnegative mean spillover effect from international oil market to coal mining industryand oil and gas industry which belong to oil alternative industries, but there is nomean spillover effect exist in electric power industry. there is a negative meanspillover effect from international oil market to oil used industries except non-ferrousmetals and ferrous metal industry; there is a volatility spillover effect frominternational oil market to oil production industry and most of the oil used industries(with the exception of non-ferrous metals and ferrous metal industry), but there’s novolatility spillover effect from international oil market to oil alternative industries.Based on the path of the extreme behavior of financial markets, This articleadopts the GARCH model by GED distribution to estimate VaR (value at risk) valueunder two markets up and down side, then the statistics is constructed to study theextreme risk spillover effect between the two markets. The results show that there’sno Extreme risk spillovers effect from international oil market to China’s stockmarket(with the exception of coal mining and machinery industry) in the up side. butthere exist Extreme risk spillovers effect from international oil market to all of China’sindustry stock (with the exception of gas industry) in the down side.Finally, based on the above theoretical analysis and empirical research, this paperputs forward some Suggestions of policy: investors in China need to pay closeattention to the international oil price trend, take appropriate investment strategy;Strengthen the consciousness of energy and Attention of the international oil marketconduction effects on China’s stock market, put international oil prices as animportant factor when evaluating the assets; Flexible adjustment of monetary policy,comprehensive consider the policy implementation of the income and the social effectand promoting the construction of Chinese stock market; Build national oil reservesystem to ensure the smooth development of the national ecomomy.