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The dynamic impact of oil price shocks on the stock market and the USD/RMB exchange rate: Evidence from implied volatility indices

Meiyu Tian, Wanyang Li and Fenghua Wen

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: Using daily data from March 16, 2011, to September 9, 2019, we explore the dynamic impact of the oil implied volatility index (OVX) changes on the Chinese stock implied volatility index (VXFXI) changes and on the USD/RMB exchange rate implied volatility index (USDCNYV1M) changes. Through a TVP-VAR model, we analyse the time-varying uncertainty transmission effects across the three markets, measured by the changes in implied volatility indices. The empirical results show that the OVX changes are the dominant factor, which has a positive impact on the USDCNYV1M changes and the VXFXI changes during periods of important political and economic events. Moreover, USDCNYV1M changes are the key factor affecting the impact of OVX changes on VXFXI changes. When the oil crisis, exchange rate reform, and stock market crash occurred during 2014–2016, the positive effects of uncertainty transmission among the oil market, the Chinese stock market, and the bilateral exchange rate are significantly strengthened. Finally, we find that the positive effects are significant in the short term but diminish over time.

Keywords: Implied volatility indices; Oil market; Chinese stock market; The USD/RMB exchange rate; Time-varying effect (search for similar items in EconPapers)
JEL-codes: C15 C22 E44 G12 G15 Q43 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820301984

DOI: 10.1016/j.najef.2020.101310

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