Abstract
The heterogeneity of investor sentiment plays a key role in causing the asymmetry of information transmission patterns and transmission intensity between markets. This paper analyzes the asymmetric risk spillover between the international crude oil market and other markets, including commodity market and financial market, using monthly data from June 2006 to October 2020. The risk from the international crude oil market is separated into upside and downside risks. The empirical results suggest that, first, from the perspective of static spillover, the risk spillover between the international oil market and commodity market or financial market enhances significantly in response to rising return; second, from the perspective of dynamic spillover, the asymmetric risk spillover of international crude oil market manifests the key roles played by important events happening in the crude oil market and alternating attributes of crude oil. Some policy suggestions are proposed in light of these empirical results.
Highlights
The dual attributes of crude oil show significant impacts on the risk spillover of the international crude oil market
If the financial attribute of crude oil is dominant, the upside risk of the international crude oil market causes the change of commodity market risk (6.29%), while the commodity market risk causes the downside risk of the international crude oil market changing (−4.70%)
We explore the asymmetric risk spillover of the international crude oil market in different return trends and attributes of crude oil, by using monthly data from June 2006 to October 2020
Summary
The dual attributes of crude oil show significant impacts on the risk spillover of the international crude oil market. As the most financialized energy product, crude oil has commodity attributes and financial attributes Factors such as global capital flow and investor speculation increase risk spillover between the international crude oil market and other markets like commodity market and financial market (Adekunle et al, 2020; Asai et al, 2020; Chkir et al, 2020; Li and Zhong, 2020; Huynh et al, 2020). The crude oil future market gradually improved since 2015, which suggests that the financial attribute of crude oil was formed. Global capital began to flow into financial markets, leading to a drop in demand for crude oil and lower international crude oil prices.
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