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Risk spillover of international crude oil to China's firms: Evidence from granger causality across quantile

Cheng Peng, Huiming Zhu, Yawei Guo and Xiuyun Chen

Energy Economics, 2018, vol. 72, issue C, 188-199

Abstract: This paper investigates the extreme risk spillover of international crude oil to stock returns for 529 firms listed on the A-share market of the Shanghai stock exchange. We apply a kernel-based nonparametric method to test quantile-on-quantile Granger causality from crude oil to firm returns. From the perspective of firm-level analysis, the findings are outlined as follows. First, our empirical results provide strong evidence to suggest the asymmetry in the linkage of extreme movements from crude oil to firm returns, that is, the case of positive risk spillovers are more severe than the case of negative risk spillovers; In particular, the down-to-down risk spillover is the most serious case. This phenomenon unravels the strong driving force of economic cycles. Second, risk transmission from oil price shocks to firm returns depends on the firm's industry features. In addition to the usual focus on inter-industry difference, we also note the within-industry heterogeneity. Third, we confirm that China's refined oil pricing reform of March 27, 2013 has had intensifying effects on the negative spillovers from oil prices to firms. For investors, we emphasize not only the awareness of the predictive power between extreme risks from international crude oil to China's firms but also the existence of heterogeneity in these predictive abilities across firms.

Keywords: Risk spillover; Crude oil; Firm returns; VaR; Refined oil pricing reform; Quantile granger causality (search for similar items in EconPapers)
JEL-codes: C14 C22 E44 G15 G32 Q43 (search for similar items in EconPapers)
Date: 2018
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