Time-frequency causality and dependence structure between crude oil, EPU and Chinese industry stock: Evidence from multiscale quantile perspectives

Huiming Zhu, Yiwen Chen, Yinghua Ren, Zhanming Xing and Liya Hau

The North American Journal of Economics and Finance, 2022, vol. 61, issue C

Abstract: This article investigates the time-frequency causality and dependence structure of Chinese industry stock returns on crude oil shocks and China's economic policy uncertainty (EPU) across quantiles over the period from January 2001 to June 2021. We use wavelet-based decomposition series to establish a multiscale causality-in-quantiles test and a quantile-on-quantile regression approach to reveal the complicated relationships involving crude oil, EPU and stock returns. Our empirical results are as follows: First, the predictability of crude oil and EPU on industry stock returns is significantly strong under extreme market conditions. Second, the explanatory ability of EPU on industry stock returns in the long term is stronger than EPU’s ability to explain short term returns. Third, the impacts of crude oil and EPU on industry stock returns remain remarkably asymmetric across quantile levels. Finally, nonenergy-intensive industries are also affected by crude oil shocks, but less than energy-intensive industries. Overall, these empirical findings can provide implications for policymakers to stabilize stock markets and investors to hedge the potential risks from crude oil and EPU.

Keywords: Time-frequency effect; Economic policy uncertainty; Crude oil; Stock returns; Causality-in-quantiles; Quantile-on-quantile regression (search for similar items in EconPapers)
JEL-codes: C22 C58 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:61:y:2022:i:c:s1062940822000523

DOI: 10.1016/j.najef.2022.101698

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