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How does China's crude oil futures affect the crude oil prices at home and abroad? Evidence from the cross-market exchange rate spillovers

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  • Sun, Chuanwang
  • Peng, Yiqi
  • Zhan, Yanhong

Abstract

This study explores the cross-market relations among the prices of China's crude oil futures launched by the Shanghai International Energy Exchange (INE), China's domestic and foreign crude oil spots, and the USD against the RMB (USD/CNY) exchange rate. We emphasize the research of whether and how the RMB-denominated INE crude oil futures affect the exchange rate spillovers to China's domestic and foreign crude oil markets. With the construction of a theoretical framework and a Time-varying Parameter Structural Vector Autoregression Model with Stochastic Volatility (SV-TVP-SVAR) model, we find that: (1) The INE crude oil futures prices have close linkages with China's domestic crude oil spot prices but have insignificant and unstable spillovers on international crude oil prices, indicating that INE crude oil futures still have limited outward influence. (2) More importantly, the oil price-exchange rate nexus is diversified under different crude oil pricing currencies. The USD/CNY exchange rate shocks have negative spillovers on international crude oil denominated by USD while having positive spillover effects on INE crude oil futures denominated by RMB. (3) The USD/CNY exchange rate also positively influences China's domestic spot market via the spillovers of INE crude oil futures.

Suggested Citation

  • Sun, Chuanwang & Peng, Yiqi & Zhan, Yanhong, 2023. "How does China's crude oil futures affect the crude oil prices at home and abroad? Evidence from the cross-market exchange rate spillovers," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 204-222.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:204-222
    DOI: 10.1016/j.iref.2023.06.013
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    References listed on IDEAS

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    1. Hussain, Muntazir & Zebende, Gilney Figueira & Bashir, Usman & Donghong, Ding, 2017. "Oil price and exchange rate co-movements in Asian countries: Detrended cross-correlation approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 338-346.
    2. Khraief, Naceur & Shahbaz, Muhammad & Mahalik, Mantu Kumar & Bhattacharya, Mita, 2021. "Movements of oil prices and exchange rates in China and India: New evidence from wavelet-based, non-linear, autoregressive distributed lag estimations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 563(C).
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    1. Banerjee, Ameet Kumar & Dionisio, Andreia & Sensoy, Ahmet & Goodell, John W., 2024. "Extant linkages between Shanghai crude oil and US energy futures: Insights from spillovers of higher-order moments," Energy Economics, Elsevier, vol. 136(C).
    2. Zhang, Dongyang & Wang, Cao & Wang, Yizhi, 2024. "Unveiling the critical nexus: Volatility of crude oil future prices and trade partner’s cash holding behavior in the face of the Russia–Ukraine conflict," Energy Economics, Elsevier, vol. 132(C).
    3. Naeem, Muhammad Abubakr & Gul, Raazia & Shafiullah, Muhammad & Karim, Sitara & Lucey, Brian M., 2024. "Tail risk spillovers between Shanghai oil and other markets," Energy Economics, Elsevier, vol. 130(C).

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