Evolution of the information transmission between Chinese and international oil markets: A quantile-based framework

Abstract

This paper investigates the evolution of the information transmission between Chinese and international crude oil markets from the perspective of return and volatility spillovers through a quantile-based framework. Using a causality-in-quantiles test, we find the asymmetric and nonlinear transmission featured by uni-directional spillovers from international WTI to China’s Shanghai oil markets in different conditions of the two markets, but not the other way around. Moreover, the degree of the information transmission is estimated using a Quantile-on-Quantile approach. Through this, marginal impacts of return and volatility of the WTI oil benchmark on that of the Shanghai oil market in a full-distributional environment are respectively gauged. We find that both return and volatility spillovers demonstrate an overall positive and heightening intensity with increases in the corresponding quantiles of the Shanghai oil market. The spillovers would be weakened by extreme events in the China domestic market, suggesting an important role of internal innovations in governing the Chinese and international oil market relationship. Overall, our results do not support the ‘one great pool’ hypothesis in the global oil market, and possess important implications. A battery of robustness checks reassures our findings.