Volatility transmissions across international oil market, commodity futures and stock markets: Empirical evidence from China

This paper uses a trivariate VAR-BEKK-GARCH model to investigate the dynamic relationship among the Chinese stock market, commodity markets and global oil price. We find significant unidirectional return spillover effect from oil market to stock market, suggesting a strong dependence of the Chinese stock market on the oil market. Our results show significant unidirectional return interaction from the Chinese stock market and global oil market to key commodities indicators in China. In particular, significant return contagions from the Chinese stock market to copper and aluminium futures and from oil market to silver, copper and aluminium markets are observed. Non-existence of return spillovers between gold and stock (oil) suggests the safe-haven role of the gold. In terms of the volatility spillovers, we find bidirectional shocks spillovers between oil and stock markets but unidirectional volatility spillovers from the oil market to the Chinese stock market. For commodities, we show evidence of strong uni-directional shock and volatility spillovers from stock market or oil market to commodities market. However there are no spillover effects from all the commodity markets to either stock market or oil market, implying potential diversification benefits from the Chinese commodity markets. Finally, the paper highlights the results which potentially have important implications for portfolio management and hedge strategies. (C) 2020 Elsevier B.V. All rights reserved.

Automated summary

The study reveals a strong dependence of the Chinese stock market on the oil market and significant impact on key commodities indicators in China. There are significant interactions between the Chinese stock market, global oil market, and commodity markets. While bidirectional shocks spillovers exist between oil and stock markets, there are unidirectional volatility spillovers from the oil market to the Chinese stock market.