Abstract
We study causal relations between the return of Brent crude and the oil-intensive equity indices (agricultural, construction, industrial and transportation) in China using daily data from 2005 to 2019. We unite the extensive Granger causality tests proposed over the past two decades that are based on the cross-correlation function approach to uncover causality in mean, variance, risky quantiles and distribution. We use subsample analysis to study changes of causal links after the US subprime financial crisis in 2008 and the Chinese domestic refined oil pricing reformation in 2013. We find bidirectional causality in variance and distribution between the Chinese industries and global oil in each subperiod. Before the oil reform, most of the sectors cause crude oil in mean, which coincides with the rapid economic growth in China. As the Chinese markets become more exposed to international oil after the reformation, extreme negative returns of global oil benefit most oil-intensive industries while positive outlook in Brent adversely affects most sectors.
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