Risk spillover from international crude oil markets to China’s financial markets: Evidence from extreme events and U.S. monetary policy

Changqing Luo, Yi Qu, Yaya Su and Liang Dong

The North American Journal of Economics and Finance, 2024, vol. 70, issue C

Abstract: We study the risk spillover from international crude oil markets to China’s financial markets by considering the shocks from extreme events and the moderating effect of U.S. monetary policy. Using the data of international oil markets and China’s financial markets from October 9, 2006, to March 8, 2022, we investigate the shocks of extreme events to risk spillover based on the GARCHSK-TVP-VAR-DY model with higher-order moments; we then empirically examine the moderating effect of the U.S. monetary policy (quantitative easing). The results reveal that (1) the international crude oil market has a significant net risk spillover effect on China’s financial markets; (2) the degree of spillover from the oil markets to the financial markets increases significantly under the shocks of extreme events; (3) the risk spillover effects of the oil markets on China’s various financial sub-markets are heterogeneous, with a more significant spillover to the commodity, foreign exchange, and monetary markets and a less significant spillover to the bond and stock market; and (4) U.S. quantitative easing policy alleviates the risk spillover effects of the oil market to Chinese financial markets, while U.S. monetary policies surpassing the conventional level may increase the risk spillover in the early stage of a severe crisis. Overall, this study has important implications for market participants and policymakers on spillover risk management.

Keywords: Risk spillovers; Extreme events; Higher-order moments; TVP-VAR; Quantitative easing (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:70:y:2024:i:c:s106294082300164x

DOI: 10.1016/j.najef.2023.102041

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