Abstract
ABSTRACT This paper studies the effect of structural oil price shocks on China’s investor sentiment using the Bayesian inference structural vector autoregression (VAR) model by Baumeister and Hamilton (2019). We find that oil supply shocks followed by consumption demand shocks have positive and persistent effects on China’s investor sentiment, whereas aggregate and inventory demand shocks have only temporary effects. The effects of these shocks are transmitted mainly by affecting investor’s confidence in domestic economic fundamentals and the international economic environment. Furthermore, oil price shocks also induce different trading motivations in the stock market.
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