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Oil Prices and Chinese Stock Market: Nonlinear Causality and Volatility Persistence

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  • Fenghua Wen
  • Jihong Xiao
  • Xiaohua Xia
  • Bin Chen
  • Zhengyan Xiao
  • Jinyi Li

Abstract

This article mainly focuses on investigating the nonlinear co-integration and nonlinear causality relationships between oil prices and Chinese stock market at the overall and sectoral levels by using nonlinear autoregressive distributed lags (NARDL) model and Diks and Panchenko (DP) test. The empirical results show that there are not significantly asymmetric co-integration effects between oil prices and Chinese stock market for the overall and sectoral levels. However, the significantly nonlinear causality between oil prices and Chinese stock market can be found. Specifically, oil prices can widely affect Chinese stock indices through nonlinear channel. The cases in the reverse also work for overall indices and Mining, Utilities, Financial and Real Estate sectors. Furthermore, the potential sources of these nonlinear causality linkages are examined. The results suggest that volatility persistence rather than asymmetrical co-integration is the major factor that accounts for the nonlinear causality between oil prices and Chinese stock market.

Suggested Citation

  • Fenghua Wen & Jihong Xiao & Xiaohua Xia & Bin Chen & Zhengyan Xiao & Jinyi Li, 2019. "Oil Prices and Chinese Stock Market: Nonlinear Causality and Volatility Persistence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(6), pages 1247-1263, May.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:6:p:1247-1263
    DOI: 10.1080/1540496X.2018.1496078
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