Risk Dependence and Risk Spillovers Effect from Crude Oil on the Chinese Stock Market and Gold Market: Implications on Portfolio Management

Bin Mo, Juan Meng () and Guannan Wang
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Bin Mo: Guangzhou Institute of International Finance, Guangzhou University, Guangzhou 510006, China
Juan Meng: Business School, Hunan First Normal University, Changsha 410205, China
Guannan Wang: School of Economics, Jinan University, Guangzhou 510006, China

Energies, 2023, vol. 16, issue 5, 1-17

Abstract: We analyze crude oil’s dependence and the risk spillover effect on the Chinese stock market and the gold market. We compare both static and dynamic copula functions and calculate the average upward and downward spillover effect using the time-varying Copula model and the conditional value-at-risk approach. By utilizing daily data on crude oil prices, China’s stock market, and the gold market, we observe an asymmetric spillover effect: the downside spillover effects from crude oil prices on the Chinese stock market and gold market are larger than the upside spillover effect. We then identify changes in the structure of the sample periods and calculate the dynamic conditional correlation between them. In addition, we explore the optimal weight and hedge ratios in diversified portfolios to mitigate potential risks. Our results suggest that investors and portfolio managers should frequently adjust their portfolio strategies, particularly during extreme events like COVID-19, when financial assets become more volatile. Furthermore, crude oil can help reduce the risk in the Chinese stock market and gold market to some extent during different sub-periods.

Keywords: risk spillover effects; crude oil; stock market; gold market; portfolio implications (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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