The Linkage between Crude Oil and Stock market: Evidence from China and the United States

Abstract

The global crude oil and stock markets have been extremely volatile in recent years, with prices fluctuating rapidly. We considered the linkages between the crude oil market and the stock market in China and the US, applying a time-varying t-Copula-GARCH model based on the Chinese INE crude oil futures price and the SSEC, and American WTI crude oil futures price and the S&P 500. We found that there are positive correlations between crude oil and stock markets in both China and the United States. Although the linkages between the two markets are weaker in China than in the United States, the magnitude of the changes and the volatility are larger. In addition, the linkages between the two markets in China and the U.S. increase significantly under extreme risk events such as the COVID-19 pandemic. These findings enrich the research on the linkages between commodity and stock markets.