Research on differences of spillover effects between international crude oil price and stock markets in China and America

The international crude oil market plays a crucial role in economies, and the studies of the correlation, risk and synchronization of the international crude oil market have important implications for the security and stability of the country, avoidance of business risk and people’s daily lives. We investigate the information and characteristics of the international crude oil market (1999–2015) based on the random matrix theory (RMT). Firstly, we identify richer information in the largest eigenvalues deviating from RMT predictions for the international crude oil market; the international crude oil market can be roughly divided into ten different periods by the methods of eigenvectors and characteristic combination, and the implied market information of the correlation coefficient matrix is advanced. Secondly, we study the characteristics of the international crude oil market by the methods of system risk entropy, dynamic synchronous ratio, dynamic non-synchronous ratio and dynamic clustering algorithm. The results show that the international crude oil market is full of risk. The synchronization of the international crude oil market is very strong, and WTI and Brent occupy a very important position in the international crude oil market.

PurposeThe purpose of this paper is to examine the long-run association and short-run causality among oil price, exchange rate and stock market in Norwegian context.Design/methodology/approachThis work uses auto regressive distributed lag (ARDL) bound co-integration test to examine the long-run association among international crude oil, exchange rate and Norwegian stock market. Further to test the causality, Toda–Yamamoto Granger causality test is used. Daily data ranging from 1 January, 2011 to 31 December, 2018 is used in this study.FindingsFindings of this study suggest the existence of long-run equilibrium relationship among oil price, exchange rate and Norwegian stock market when oil price is taken as dependent variable. Further, this study observes the bi-directional causality between Norwegian stock market and exchange rate and unidirectional causality between oil and Norwegian stock market (from oil to stock market).Originality/valueTo the best of the authors’ knowledge, this the first study in context of Norway to explore the long-run association and causal relationships among international crude oil price, exchange rate and stock market index. Particularly, association of exchange rate and stock market largely remains unexplored for Norwegian economy. Further, majority of studies conducted in Norwegian setup have considered the period up to year 2010 and association of these variables is found to be time varying. Finally, this study uses ARDL bound co-integration test and Toda–Yamamoto Granger causality test. These methodologies have been used in literature in context of other countries like India and Mexico but not yet applied to study the Norwegian case.

Spillover effect of US dollar exchange rate on oil prices

Spillover of international crude oil prices on China's refined oil wholesale prices and price forecasting: Daily-frequency data of private enterprises and local refineries

This paper systematically evaluates the influence of international crude oil risk on Chinese macro-financial risks, by quantifying risk spillover effects from international crude oil market to China’s three major markets (stock, foreign exchange and commodity markets). Specifically, this paper initially calculates the risks of international crude oil market and China’s three major markets by adopting a conditional autoregressive value at risk (CAViaR) model, then the spillover index is used to capture the risk spillovers from international crude oil market to China’s major markets. The empirical results indicate that there exists significant heterogeneous risk spillover effects transmitted from international crude oil market to China’s three major markets. To be more specific, the risk derived from international crude oil market is always a dominant driving force of risk in China’s commodity market. However, the shocks of global oil risk do not affect much of the risks of China’s stock and foreign exchange markets in general. In addition, our results further report that international oil risk has considerable effects on China’s macro-financial risks during several specific periods, which can be attributed to several major events. Specifically, the risk spillovers originated from international crude oil market remarkably contribute to the risk of China’s commodity market during the period of global financial crisis. International crude oil risk makes great contribution to the risks of Chinese stock and foreign exchange markets, when several global notable events occur as well as major financial reforms in China are implemented. The empirical results have significant implications for policy-makers and market participants.

The high volatility and low stability of the international crude oil market make it extremely challenging to analyze and predict oil prices, but the economic returns translated from the transformation of research results are extremely lucrative and attractive to institutional investors. In this paper, we first optimize the traditional logistic regression algorithm for the row and column dimensions of the dataset, so that its convergence speed and gradient decrease, and then introduce Lasso regularization to do further dimensionality reduction. The improved logistic regression algorithm is then used as the basis for constructing an international oil price prediction model, and the prediction performance of the constructed model is compared with that of other five logistic regression models on the dataset, and at the same time, the prediction of international crude oil price is carried out for two kinds of contingencies, namely, natural disasters, and over-expectation of important data. It is found that the AUC of the model in this paper is 0.034 higher than that of the traditional logistic regression model, and the probability that the international crude oil price will keep fluctuating between $0 and $4 in the next 24 hours is the highest when natural disasters occur, with an average probability of 0.58666, while the international crude oil price will keep fluctuating between $4 and $10 in the next 24 hours when the economic data, monetary data, crude oil production and sales, and stockpiles do not meet the expectations in the best way. Maintain the greatest probability of fluctuation between 4 and 10 dollars, with an average probability of 0.55345.This study provides a new basis for trading decision-making for professional institutional investors and algorithmic trading practitioners, which helps to improve the level of trading decision-making.

PurposeThe purpose of this study is to reveal the lead–lag structure between international crude oil price and stock markets.Design/methodology/approachThe methods used for this study are as follows: empirical mode decomposition; shift-window-based Pearson coefficient and thermal causal path method.FindingsThe fluctuation characteristic of Chinese stock market before 2010 is very similar to international crude oil prices. After 2010, their fluctuation patterns are significantly different from each other. The two stock markets significantly led international crude oil prices, revealing varying lead–lag orders among stock markets. During 2000 and 2004, the stock markets significantly led international crude oil prices but they are less distinct from the lead–lag orders. After 2004, the effects changed so that the leading effect of Shanghai composite index remains no longer significant, and after 2012, S&P index just significantly lagged behind the international crude oil prices.Originality/valueChina and the US stock markets develop different pattens to handle the crude oil prices fluctuation after finance crisis in 1998.

Exchange Rates against the US Dollar

Crude oil price and exchange rate: Evidence from the period before and after the launch of China's crude oil futures

Spillover effect and Granger causality investigation between China’s stock market and international oil market: A dynamic multiscale approach

As financial conditions become more complex and variable, capturing economic patterns becomes harder. The Financial Conditions Index (FCI) has gained traction as a tool to assess the performance of financial markets in nations or regions. This paragraph has created the China FCI using various financial indicators from 2002 to 2022. And with the use of statistical models like DMA-TVP-FAVAR, mixed-frequency Granger causality test, TVP-SV-VAR, and MS-VAR to analyze the relationship between China's financial condition, real economy, and the crude oil market. Different impacts were observed over time and in response to economic shocks, Results show that the fluctuation of international oil price has a negative impact on our financial condition. Therefore, the government should consider the impact of external shock factors such as international crude oil price when formulating financial policies to prevent financial risks.

The Chinese refined oil pricing reform in 2013 has brought its refined oil price to be more aligned with the international oil price, helping to mitigate prior distorted pricing mechanisms. Its impact on the correlation, tail risks, and spillover effects between the international crude oil market and Chinese sectoral stock markets warrants empirical assessments. Time-varying copula models and conditional VaR (CoVaR) are employed to examine the correlation between the international oil market and Chinese sectoral stock indexes before and after the 2013 pricing reform, as well as the tail risk and spillover effects of the extreme and moderate oil markets. The results show that: (1) the correlation between the oil market and all 11 Chinese stock sectors is positive both before and after the reform, but the correlation is weaker after the reform than before; (2) The downside tail risk of the extreme and moderate oil markets to most Chinese stock market sectors, and the upside tail risk of the moderate oil market to most stock sectors are lower after the reform; (3) Tail risk spillover effects of extreme oil market on all sectors exist before and after the reform; (4) The upside tail risk spillover effects of moderate oil market exist in most sectors before the reform, but they almost all disappear after the reform. The downside risk spillover effects of the moderate oil market do not exist before or after the reform. The findings provide valuable references for portfolio management and future policy update.

Many studies focus on the impact of international crude oil price volatility on various economic variables in China with a hypothesis that international crude oil price affected Chinese crude oil price first and then other economic variables. However, there has been little research to explore whether or not international and Chinese oil market are integrated. This study aims to investigate the relationship between Chinese and international crude oil prices by VAR and VEC-TARCH models. It was found that the two crude oil markets have been integrated gradually. But the impact of external shocks on the Chinese crude oil market was stronger and the Chinese crude oil price was sensitive to changes in international crude oil price, implying that the centrally controlled oil market in China is less capable of coping with external risk. In addition, the volatility of both Chinese and international crude oil prices was mainly transmitted by prior fluctuation forecast and the impact of external shocks was limited, demonstrating that in both cases volatility would disappear rather slowly. Furthermore, Chinese and international crude oil markets have established a stable relationship. When the direction of external shocks on the two variables’ respective stochastic term was consistent, the impact on the two variables’ joint volatility was aggravated and vice versa.

Purpose: Whether this earthquake would become a turning point of the high oil price and whether it would have big impact on yen exchange rate are two issues to be discussed in this paper. Design/methodology/approach: To analyze deeply the internal relations between changes in yen exchange rate caused by Japan's earthquake and price fluctuation of international crude oil, this research chooses middle rate of yen exchange rate during the 45 days around Japan's earthquake and price data of international crude oil to do an empirical study, uses VAR model and HP trend decomposition to estimate the mutual effect of yen exchange rate change and price fluctuation of international crude oil in this period. Findings: It has been found in the empirical study with VAR model and HP filter decomposition model on the yen exchange rate and the international crude oil price fluctuation during 45 days around Japan's earthquake that: the fluctuation of yen exchange rate around the earthquake is one of the main reasons for the drastic fluctuation of international crude oil price in that period. The fluctuation of international crude oil price directly triggered by yen exchange rate occupies 13.54% of its total variance. There is a long-term interactive relationship between yen exchange rate and international crude oil price. The upward trend of international crude oil price after the earthquake was obvious, while yen exchange rate remained relatively stable after the earthquake. Originality/value: As economic globalization goes deeper, the influence of natural disasters on international financial market and world economy will become more and more obvious. It has a great revelatory meaning to studying further each kind of natural disaster's impacts on international financial market and world economics.

Oil is an important energy resource. Fluctuation in international crude oil prices affects all aspects of the economy. The exchange rate is one of the important channels for the international crude oil price shock to pass to the real economy and financial markets. The impact of international crude oil price fluctuation on the exchange rate of oil-importing countries has attracted more and more attention. The US dollar is the main invoice and settlement currency of the international oil market. The change of the US dollar exchange rate will inevitably affect the international crude oil price. By combing the relevant classic literature and recent literature, the relationship between international crude oil prices and the exchange rate of oil-importing countries is discussed. Due to the different methods of use, the relationship between the two is not conclusive. This paper probes into the impact paths of national crude oil price fluctuation on the exchange rate of oil-importing countries, but the influence level depends on the relative degree of each country affected by oil prices, which cannot be generalized. The article summarizes the methods of studying the relationship between oil prices and exchange rates, most of which are studying the causal relationship between the two and their mutual influence, nonlinear structure, and volatility spillover effects. Through reviewing and summarizing the relevant literatures, this paper argues that exploring the inherent laws of oil price volatility buffer under different exchange rate regimes and studying the transmission mode and intensity of oil price fluctuations on exchange rate effects can be the focus of future research.