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Volatility spillovers between crude oil and Chinese sectoral equity markets: Evidence from a frequency dynamics perspective

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  • Wang, Xunxiao
  • Wang, Yudong

Abstract

We examine the frequency dynamics of volatility spillovers between crude oil and China's stock markets in a spectral representation framework of generalized forecast error variance decomposition using sectoral stock indices data. We find evidence of total volatility spillover driven mainly by short-term spillovers. The net spillovers of the oil market are almost all positive and dominated by short-ter.m components, although the spillover during China's 2015 financial crisis is negative and attributable to long-term components. In addition, there exists heterogeneity in net pairwise (frequency) spillovers between the oil and sectoral stock markets. Moreover, structural breaks in volatilities appear to be a significant feature of volatility spillovers. Finally, frequency spillovers in our system can predict future stock market volatility. These results have economic implications for investors and policymakers.

Suggested Citation

  • Wang, Xunxiao & Wang, Yudong, 2019. "Volatility spillovers between crude oil and Chinese sectoral equity markets: Evidence from a frequency dynamics perspective," Energy Economics, Elsevier, vol. 80(C), pages 995-1009.
    • Handle: RePEc:eee:eneeco:v:80:y:2019:i:c:p:995-1009
    DOI: 10.1016/j.eneco.2019.02.019
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