Time-frequency connectedness and cross-quantile dependence between crude oil, Chinese commodity market, stock market and investor sentiment

Abstract

This study mainly analyzes the time-frequency correlation between crude oil, Chinese commodity market, stock market and investor sentiment index, and the cross-quantile dependence of investor sentiment index on China commodity futures and stock market. The data are decomposed by wavelet analysis method, combined with time-frequency volatility spillover method, to observe the spillover changes of Chinese commodity market, stock market, crude oil prices, economic policy uncertainty and investor sentiment index in the vision of short-term, medium-term and long-term investment. Furthermore, we employ the cross-quantilogram framework to investigate the cross-quantile dependence between the investor sentiment index and Chinese commodity futures or stock market. The empirical results are as follow: Firstly, there is a large degree of spillover among various commodity futures in China. WTI transmits vast volatility to Chinese investor sentiment index. Secondly, the total system spillover increases significantly during the outbreak of major economic crisis events and health and safety events. Thirdly, under normal and extreme market conditions, the investor sentiment index has an obvious positive spillover on agricultural futures. On the other hand, the stock index has an obvious positive correlation with the investor sentiment index, and lasts for a long time.