Abstract
With the continuous increase of China’s foreign-trade dependence on crude oil and the accelerating integration of the international crude oil market and the Chinese finance market, the spillover effect of international oil price fluctuation on China’s stock markets increasingly attracts the attention of the public. In order to explore the impact of international oil price fluctuation on China’s stock markets and the time-varying spillover differences of industry sectors, this study proposes three research hypotheses and constructs a multi-time scale analysis framework based on wavelet analysis and a time-varying t-Copula model. In this paper, we use the Shanghai Composite Index as the representative of a general trend of the stock market, and we use the stock index of the China Securities Industry as the counterpart of industrial sectors. Based on the data from 5 January 2005 to 31 May 2020, this paper measures and analyzes the spillover effect of international oil price fluctuation on China’s stock markets, under different volatility periods. The results show that, firstly, the spillover effect of international oil price fluctuation on the Chinese stock markets is different. In the short and medium volatility period, the changes in international oil price are ahead of the changes in the Chinese stock markets, while the latter is ahead of the former under long-term fluctuations. Secondly, the spillover effect of international oil price fluctuation on China’s industry stock indexes is persistent. As the time scale increases, the tail dependency will increase. Finally, the impact of risk events aggravates the volatility of the stock markets in the short-term, while the mid- to long-term impact mainly affects the volatility trend. Investment risk control can make overall arrangement on the basis of the characteristics of oil price impact under different fluctuation stages.
Highlights
Crude oil has the triple attributes of commodity, finance, and politics
Numerous researches have proven that rise in crude oil prices can affect the stock market through real economy, financial investment, and other pathways; no consensus has been reached as regards the size and direction of the spillover effect of oil price fluctuation on stock markets [4,5]
In order to better analyze the multi-time scale effect, this paper introduces ARMA model, and an ARMA–EGARCH model was constructed for marginal distribution estimation [33]
Summary
Crude oil has the triple attributes of commodity, finance, and politics. Crude oil price changes might directly induce the fluctuation of a macro-economy and even increase the uncertainty of financial market development. Unlike prior independent measurements of the spillover effects of oil price fluctuation on the composite index or industrial stock price index, this research included comprehensive benefits and industrial differences into a uniform analysis framework and discussed the comprehensive benefit spillover and tail risk spillover of oil price fluctuation on China’s stock markets by combining wavelet analysis and the Copula model. This approach expanded the correlation analysis of the spillover effect.
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