Risk spillover effects of international crude oil market on China’s major markets

Siming Liu; Honglei Gao; Peng Hou; Yong Tan; Siming Liu; Honglei Gao; Peng Hou; Yong Tan

doi:10.3934/energy.2019.6.819

AIMS Energy

2019, Volume 7, Issue 6: 819-840. doi: 10.3934/energy.2019.6.819

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Research article

Risk spillover effects of international crude oil market on China’s major markets

1.
School of Statistics, University of International Business and Economics, Beijing 100029, China
2.
School of Economics and Management, Beijing Forestry University, Beijing 100083, China
3.
Department of Accountancy, Finance and Economics, University of Huddersfield, HD1 3DH, UK

Received: 06 August 2019 Accepted: 13 November 2019 Published: 27 November 2019

This paper systematically evaluates the influence of international crude oil risk on Chinese macro-financial risks, by quantifying risk spillover effects from international crude oil market to China’s three major markets (stock, foreign exchange and commodity markets). Specifically, this paper initially calculates the risks of international crude oil market and China’s three major markets by adopting a conditional autoregressive value at risk (CAViaR) model, then the spillover index is used to capture the risk spillovers from international crude oil market to China’s major markets. The empirical results indicate that there exists significant heterogeneous risk spillover effects transmitted from international crude oil market to China’s three major markets. To be more specific, the risk derived from international crude oil market is always a dominant driving force of risk in China’s commodity market. However, the shocks of global oil risk do not affect much of the risks of China’s stock and foreign exchange markets in general. In addition, our results further report that international oil risk has considerable effects on China’s macro-financial risks during several specific periods, which can be attributed to several major events. Specifically, the risk spillovers originated from international crude oil market remarkably contribute to the risk of China’s commodity market during the period of global financial crisis. International crude oil risk makes great contribution to the risks of Chinese stock and foreign exchange markets, when several global notable events occur as well as major financial reforms in China are implemented. The empirical results have significant implications for policy-makers and market participants.
- risk spillovers,
- crude oil market,
- stock market,
- foreign exchange market,
- commodity market,
- CAViaR,
- spillover index
Citation: Siming Liu, Honglei Gao, Peng Hou, Yong Tan. Risk spillover effects of international crude oil market on China’s major markets[J]. AIMS Energy, 2019, 7(6): 819-840. doi: 10.3934/energy.2019.6.819

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Abstract

This paper systematically evaluates the influence of international crude oil risk on Chinese macro-financial risks, by quantifying risk spillover effects from international crude oil market to China’s three major markets (stock, foreign exchange and commodity markets). Specifically, this paper initially calculates the risks of international crude oil market and China’s three major markets by adopting a conditional autoregressive value at risk (CAViaR) model, then the spillover index is used to capture the risk spillovers from international crude oil market to China’s major markets. The empirical results indicate that there exists significant heterogeneous risk spillover effects transmitted from international crude oil market to China’s three major markets. To be more specific, the risk derived from international crude oil market is always a dominant driving force of risk in China’s commodity market. However, the shocks of global oil risk do not affect much of the risks of China’s stock and foreign exchange markets in general. In addition, our results further report that international oil risk has considerable effects on China’s macro-financial risks during several specific periods, which can be attributed to several major events. Specifically, the risk spillovers originated from international crude oil market remarkably contribute to the risk of China’s commodity market during the period of global financial crisis. International crude oil risk makes great contribution to the risks of Chinese stock and foreign exchange markets, when several global notable events occur as well as major financial reforms in China are implemented. The empirical results have significant implications for policy-makers and market participants.

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