Is world oil market “one great pool”?: An example from China's and international oil markets

Li Liu, Ching-Cheng Chen and Jieqiu Wan

Economic Modelling, 2013, vol. 35, issue C, 364-373

Abstract: In this paper, we examine the hypothesis that world oil market is “one great pool” by investigating the integration between China's and four major crude oil markets. Using a nonlinear correlation measure, we find that the price co-movement between China's and international oil prices is stronger in the long-term than in the short-term. Employing a threshold error correction model, we find that long-term equilibrium relationships display significant asymmetric effects and exist in a regime only. Moreover, international oil prices can drive China's oil prices to run towards long-term equilibrium level, but not vice versa. Finally, we also investigate volatility transmission using BEKK–GARCH models. Both in-sample and out-of-sample evidences indicate that only unidirectional volatility spillover running from benchmark markets to China's oil market can be found. Benchmark markets dominate China's oil market. Overall, our results do not support the “one great pool” hypothesis.

Keywords: Crude oil; Market integration; Nonlinear correlation; Threshold VECM; Volatility transmission (search for similar items in EconPapers)
JEL-codes: F21 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999313002988
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:35:y:2013:i:c:p:364-373

DOI: 10.1016/j.econmod.2013.07.027

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().