Dependencies and Volatility Spillovers among Chinese Stock and Crude Oil Future Markets: Evidence from Time-Varying Copula and BEKK-GARCH Models

Abstract

This paper investigates co-movements among the Chinese stock market, Shanghai International Energy Exchange (INE) crude oil futures and West Texas Intermediate (WTI) crude oil futures. We use Copula models to capture tail dependencies and employ the VAR-BEKK-GARCH model to examine the direction of volatility spillovers. We find that there are positively time-varying dependency relationships among the three markets. Compared with the corresponding upper-tail dependencies, the lower-tail dependencies were larger before the COVID-19 pandemic while relatively weaker after the breakout of the pandemic. Before the COVID-19 pandemic, there was only a statistically significant volatility spillover from WTI crude oil future market to the INE crude oil future market. After the breakout of the COVID-19 pandemic, there were statistically significant volatility spillovers in the two pairs of markets, namely, the WTI–INE and Chinese stock–WTI. However, we only find statistically significant evidence of unidirectional volatility spillover from the Chinese crude oil future market to the Chinese stock market during the pandemic.