Linkages between the international crude oil market and the Chinese stock market: A BEKK-GARCH-AFD approach

Qiwei Xie, Ranran Liu, Tao Qian and Jingyu Li

Energy Economics, 2021, vol. 102, issue C

Abstract: The extant literature mainly utilized the wavelet tools and EMD-type methods to investigate linkages between different markets based on the frequency-domain information, confronting the difficulties of the wavelet basis selections and scale aliasing phenomenon. To overcome these disadvantages, the present study proposes a BEKK-GARCH-AFD approach based on the adaptive-Fourier-decomposition (AFD) to reveal the linkages between the international crude oil market and the Chinese stock market. According to the spillover effect between markets revealed by BEKK-GARCH, the proposed approach could further disclose the linkages between markets under external shocks with high-resolution information concerning market fluctuations provided by the AFD. Our empirical results demonstrate that the oil supply and demand shocks caused by external events (e.g., the strikes, the geopolitics, and the natural disasters) will put pressure on the Chinese stock market, while the combination of bullish and bearish events (e.g., the reduction of crude oil production and the shale oil boom) contributes to stabilizing the stock market.

Keywords: Adaptive-Fourier-decomposition (AFD); BEKK-GARCH; Time-frequency domain; Oil and stock markets; Structural breaks (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:102:y:2021:i:c:s0140988321003704

DOI: 10.1016/j.eneco.2021.105484

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