Abstract
We investigate the spillover effect between crude oil future prices, crude oil spot prices, and stock index by using the multivariate stochastic volatility model. These tests between each market show the significant Granger causes of spillover effect. More and more evidences show that the crude oil price has been affected by other financial markets. The oil future played an important role in the energy market. WTI and Brent oil future have more spillover effect than INE oil future. The result shows that S&P stock market is more sensitive to the oil price than Shanghai stock market. The cross-market spillover effect we found can give some advices for the investor of oil and stock market. DIC test shows that DGC-MSV-t is considered effective and more accurate.
Highlights
Crude oil is the blood of modern industry and the most financialized energy product
It is expected that China’s oil demand will continue to rise in the future, and its dependence on foreign sources will remain high for a long time
Crude oil prices are highly related to the national economy [3, 4]
Summary
Crude oil is the blood of modern industry and the most financialized energy product. According to the report of CNPC, China’s oil dependence on foreign sources reached 70.8%, with an increase of 1.2 percentage per year. WTI and Brent Crude Oil Futures are the most important pricing benchmarks for the US and European oil markets. In 2018, Shanghai International Energy Exchange (INE) established the first Chinese crude oil future trading product. A lot of research studies show that spillover effect and co-movement between stock and oil price exist in both developed market and emerging market [5, 6]. Clean energy brings more spillover to the crude oil price [10]. Luo and Qin [11] have proved the oil price has a significant spillover to the Chinese stock index. Boubaker and Raza [12] have found that all BRICS stock markets have spillover or subspillover from oil price. In 2020, the spot oil price and oil future are crashing in the COVID-19 pandemic [19]. e stochastic volatility model has added uncertain random disturbance into the time series. e
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