The US-China tension and fossil fuel energy price volatility relationship

Sitong Li, Huangen Chen and Gengxuan Chen

Finance Research Letters, 2025, vol. 74, issue C

Abstract: Tensions in the US-China relationship and strategies such as trade sanctions and rare earth controls implemented in recent years affect the import and export shares of fossil fuels in both countries. Therefore, this paper evaluates the influence of the US-China Tension Index (UCT) on the price volatility of fossil fuels under the GARCH-MIDAS model structure. Using a rolling window approach for parameter estimation and generating forecasts, the results show that an increase in tension between the two countries raises the energy price volatility and the double asymmetric GARCH-MIDAS-UCT model beats the rest of the competition.

Keywords: US-China tension; Fossil fuel; Volatility forecasting; GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C22 C53 Q47 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017367

DOI: 10.1016/j.frl.2024.106707

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