Extreme risk spillover of the oil, exchange rate to Chinese stock market: Evidence from implied volatility indexes

Abstract

The study explores extreme risk spillover of the oil and USD/CNY exchange rate to Chinese stock market from the uncertainty volatility perspective, based on the upside and downside Conditional Value-at-Risk (CoVaR) values. Specifically, after testing the statistical significance of the CoVaR and VaR values, we make comparison of the risk spillovers from uncertainty volatility increasing of oil and USD/CNY exchange rate market by computing the upside delta CoVaR. Thus, the empirical results confirm the risk of uncertainty fluctuation in Chinese stock market is much more sensitive to that of in the oil market, while the impact of the USD/CNY uncertainty volatility is relatively weak in most case. In addition, during the reform period of Chinese exchange rate system, the risk spillovers from USD/CNY exchange rate uncertainty fluctuations to Chinese stock market is significant. Furthermore, compared with the effects of USD/CNY exchange rate uncertainty volatility increases, there is great risk spillover from the uncertainty volatility increases in the oil market to that of Chinese stock market during the bearish period.