Relationships and portfolios between oil and Chinese stock sectors: A study based on wavelet denoising-higher moments perspective

Pengfei Zhu, Yong Tang, Yu Wei, Yimin Dai and Tuantuan Lu

Energy, 2021, vol. 217, issue C

Abstract: Shanghai crude oil futures contracts (SC) has been the third largest trading volume crude oil futures worldwide. From wavelet denoising-higher moment perspective, we investigate the relationships and portfolios between oil and Chinese stock sectors, based on the daily data of WTI, SC and Chinese sectors. Given the existence of noise and time-varying conditional higher moments in financial data, the Wavelet denoising-GARCHSK and Wavelet denoising-GARCHSK-Copula portfolio methods are proposed to model the margin of variables and construct oil-stock portfolios, respectively. The empirical results indicate that the Wavelet denoising-GARCHSK outperforms the other methods in terms of log likelihood, AIC and BIC. Then, these results also denote that there are the notable industry characteristics in the oil-stock relationships, depending on whether the sector is petroleum-dependent or petroleum-independent as well as locates upstream or downstream of petrochemical industry. In addition, most of the Chinese stock sectors have stronger upper tail dependence with SC than WTI, while the lower tail is the opposite. Finally, it is discovered that the oil-stock portfolios obtained by Wavelet denoising-GARCHSK-Copula portfolio model outperform the control groups in terms of return and ASR and that WTI is a better diversifier for investors in Chinese stock market in most cases.

Keywords: SC and WTI oil Futures; Chinese stock sectors; Relationship; Portfolio; Wavelet denoising; Time-varying conditional higher moments (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:217:y:2021:i:c:s0360544220325238

DOI: 10.1016/j.energy.2020.119416

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