Oil price shocks and China's stock market
Yanfeng Wei and
Energy, 2017, vol. 140, issue P1, 185-197
Using monthly data from February of 1996 to October of 2015, this article studies the effects of oil price shocks on China's stock market. Following Kilian , three different types of oil shocks named as oil supply shocks, aggregate demand shocks and oil-specific demand shocks are identified. We find the relationship between oil price shocks and stock market is unstable in the full sample, and there is a structural break in December of 2006. Thus, the full sample is split into two sub-periods: 1996M2-2006M12 and 2007M1-2015M10. We reveal that, in the two sub-periods, the responses of stock return to oil shocks are different and crucially related to the causes of oil price changes, while the responses of stock volatility to oil shocks are almost negligible. Meanwhile, we prove that the monetary policy almost has no effects on the link between oil shocks and stock market. For the sub-index of the stock market, we show that the influences of oil shocks on their returns and volatilities vary greatly, which suggests that generalizing the corresponding findings based on the composite index to its sub-index may be inappropriate. Finally, our analysis implies that the recent oil price fluctuations are mainly driven by speculative demand.
Keywords: Oil price shocks; Stock return; Stock volatility; Structural VAR; Minnesota prior (search for similar items in EconPapers)
JEL-codes: E44 G10 Q43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:140:y:2017:i:p1:p:185-197
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