Abstract
This paper uses a quantile impulse response approach to investigate the impact of oil price shocks on Chinese stock returns. This process allows us to uncover asymmetric effects of oil price shocks on stock market returns by taking into account the different quantiles of oil price shocks. Our results show that the responses of Chinese stock market returns to oil price shocks differ greatly, depending on whether the oil and stock market is in a bust or boom state and whether the shock is driven by demand or supply. The impacts of oil price shocks on Chinese stock returns present asymmetric features. In particular during a bust phase, oil supply and demand shocks significantly depress stock market returns, while during a boom period, the aggregate demand shock enhances stock market returns. These results suggest some important implications for investors and decision makers.
Highlights
Crude oil has been the focus of greater attention than other commodities
Following Kilian and Park [12], we examine the reaction of the Chinese stock market to oil supply shock, aggregate demand shock and oil-specific shock
We argue that the conditional quantiles of oil price distribution may be related to the different oil market states
Summary
Crude oil has been the focus of greater attention than other commodities It plays a significant role in the economy and the financial market. A lot of literature has focused on the link between oil prices and the Chinese stock market [23,24,25,26,27,28,29,30]. These studies do not elaborate various complexities in the link between oil price and stock prices. The effects of oil price shocks may be heterogeneous and varying depending on market conditions and the types of the oil price shocks. It is worth examining the effect of oil price shocks on the Chinese stock market simultaneously under the control of the oil and stock market conditions
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