Measuring the multi-scale price transmission effects from crude oil to energy stocks: A cascaded view

Zenglei Xi, Jinxiu Yu, Qingru Sun, Wenqi Zhao, He Wang and Shuo Zhang

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: The extant literature confirms that international crude oil price volatility has a transmission effect on the energy stock market in distinct time-frequency scales. However, the transmission process might spread step by step and lead to direct and indirect impacts, which are defined as cascaded transmission in this paper. To reveal the cascaded transmission effects from crude oil price volatility to the energy stock market at different time-frequency domains, this paper presents a systematic research framework combining the maximal overlap discrete wavelet transform method, BEKK-GARCH model, Diebold-Yilmaz spillover index and the network analysis method. Taking the Chinese energy stock market as an example, the empirical results show that: (1) Crude oil price volatility has different impacts on Chinese energy stocks across the six time scales, with the largest impact in D6. Moreover, crude oil price volatility does not directly affect all energy stocks, but it does indirectly. (2) The proportion of indirect impact as a percentage of total impact ranges from 22.66% to 60.96%. Thus, indirect effects should not be overlooked when analyzing the impact of crude oil price volatility on Chinese energy stock markets. (3) The impact of crude oil on energy stocks varies by industry, and “Energy Mining Equipment and Services” stocks are the most significantly affected in time scales except D3 and D6. This study could provide insights for energy stock market participants with different risk preferences to accurately make decisions under distinct time scales.

Keywords: Crude oil; Energy stocks; Price volatility transmission; Wavelet transform; Network analysis method (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s1057521923004076

DOI: 10.1016/j.irfa.2023.102891

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