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Volatility spillovers between crude oil and Chinese sectoral equity markets: Evidence from a frequency dynamics perspective

Xunxiao Wang and Yudong Wang

Energy Economics, 2019, vol. 80, issue C, 995-1009

Abstract: We examine the frequency dynamics of volatility spillovers between crude oil and China's stock markets in a spectral representation framework of generalized forecast error variance decomposition using sectoral stock indices data. We find evidence of total volatility spillover driven mainly by short-term spillovers. The net spillovers of the oil market are almost all positive and dominated by short-ter.m components, although the spillover during China's 2015 financial crisis is negative and attributable to long-term components. In addition, there exists heterogeneity in net pairwise (frequency) spillovers between the oil and sectoral stock markets. Moreover, structural breaks in volatilities appear to be a significant feature of volatility spillovers. Finally, frequency spillovers in our system can predict future stock market volatility. These results have economic implications for investors and policymakers.

Keywords: Frequency volatility spillovers; Structural breaks; Oil market; Stock market (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.eneco.2019.02.019

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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