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The relationship among China’s fuel oil spot, futures and stock markets

Li Ping, Zhang Ziyi, Yang Tianna and Zeng Qingchao

Finance Research Letters, 2018, vol. 24, issue C, 151-162

Abstract: This paper examines the relationship among China’s fuel oil spot, fuel oil futures and energy stock markets over the period from August 26, 2004 to January 21, 2016 using the dynamic condition correlation (DCC) multivariate GARCH model. For comparison, we also consider the corresponding markets in United States. In addition, using the VAR-BEKK-GARCH model, we investigate the volatility spillover effect among the three markets. We obtain the following conclusions: Firstly, the correlations among the three markets in China are lower than those in US; Secondly, there are several structural breaks in all correlation series we considered. Specifically, the correlations were very high before the crises and then decreased quickly during the crises, because oil markets are financialized before the crises and then out of financialization during and after the crisis; Thirdly, there are bilateral volatility spillover effects between fuel oil spot and futures, fuel oil spot and energy stocks, while only one-way effect from energy stock market to fuel oil futures market.

Keywords: Fuel oil; Correlation; Stock market; DCC-GARCH; VAR-BEKK-GARCH (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finlet:v:24:y:2018:i:c:p:151-162