Dynamic connectedness between crude oil futures and energy industrial bond credit spread: Evidence from China

Yi-Shuai Ren, Tony Klein, Yong Jiang, Pei-Zhi Liu and Olaf Weber

Energy Economics, 2025, vol. 143, issue C

Abstract: This study utilizes a connectedness approach that is based on the quantile vector autoregressive model to analyze the level of connectedness between China's crude oil future market (INE) and the energy industrial bond credit spread across various markets. The findings of our study indicate that (1) The total connectedness index (TCI) exhibits a U-shaped pattern that changes according to conditional quantiles. This suggests that the spillover between the energy industry bond market and oil futures market is greater during extreme market conditions (bullish and bearish markets) compared to normal markets; (2) The TCI increased in size and volatility during the COVID-19 pandemic and the Russia-Ukraine conflict; (3) The electricity sector consistently transmits shocks, whereas INE consistently receives them, irrespective of the market states; (4) The credit risk of the energy sector has a significant impact on INE, particularly in bullish and bearish markets, while the former has a little impact on the latter. The coal and electricity sectors are the primary net spillover transmitters for INE in both bullish and bearish markets. Conversely, the gas sector is the largest net spillover transmitter for INE in a typical market. Lastly, our research offers novel perspectives on the information-sharing channels for the energy sector's bonds and oil futures markets, which could assist traders and investors in making more informed investment decisions.

Keywords: Shanghai crude oil future; Bond credit spread; Dynamic connectedness; Energy industry; China (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325001173

DOI: 10.1016/j.eneco.2025.108294

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