Information connectedness of international crude oil futures: Evidence from SC, WTI, and Brent

Yu Wei, Yaojie Zhang and Yudong Wang

International Review of Financial Analysis, 2022, vol. 81, issue C

Abstract: The first Yuan (RMB) denominated crude oil futures contract, SC, was launched in the Shanghai International Energy Exchange (INE) on 26 March 2018, which is extremely meaningful for China and other Asian countries by offering a new option of oil price risk management. To identify the information connectedness among this emerging contract and those mature WTI and Brent oil futures, we provide return and volatility directional connectedness evidence among them in both the time and frequency domains. The empirical results show that, firstly the three oil futures of SC, WTI, and Brent present high degree of total connectedness in the return and volatility series, implying tight information transfer among them. Secondly, the net directional connectedness results suggest that the SC can provide competitive information on oil returns and is a net and powerful contributor to volatility shocks. In addition, from a frequency-specific perspective, we find that the SC appears to be not only a net transmitter of return shocks on the medium- and long-term frequencies but also a net transmitter of volatility shocks consistently across the whole frequency ranges. The overall evidence suggests that China's new oil futures is an active participant in the international oil futures market, and may become an important product in information transmission across international crude oil futures markets by providing effective hedging instrument for crude oil producers, refiners, consumers, and investors, especially those in Asia.

Keywords: Return and volatility connectedness; Yuan-denominated oil futures; International crude oil futures; Frequency domain (search for similar items in EconPapers)
JEL-codes: C32 C58 G10 Q40 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:81:y:2022:i:c:s1057521922000709

DOI: 10.1016/j.irfa.2022.102100

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