Dynamic impact of China's stock market on the international commodity market

Shaobo Wen, Haizhong An, Shupei Huang and Xueyong Liu

Resources Policy, 2019, vol. 61, issue C, 564-571

Abstract: It is generally believed that the international commodity markets’ downturn is attributed to China's stock markets collapse. To verify this, this paper assesses the influence of Shanghai (securities) stock exchange composite (SSEC) index on S&P GSCI total returns, a leading commodity composite index from August 31, 2006, to September 19, 2016. We implement wavelet transform to extract the approximations of SSEC and GSCI. Furthermore, we use the state space model to determine the margin between SSEC and GSCI as well as display the margin dynamic evolution over time. The margin denotes the units of GSCI change when SSEC increases a unit, which can display China's stock (equity) influence (CEI) on the international commodity market. We found that CEI reached its peak in 2007, then experienced two steep declines and an immediate mild rebound, and eventually hovered at a historically low level. Moreover, each inflection point of CEI could correspond to a specific international economic event, which indicates that the change of CEI is influenced by exogenous variables, especially the absolute increment of GDP and the U.S. dollar index. The influence of China's stock market on the international commodity market is not as great as believed and the diversification benefit still exists for the construction of portfolio. In addition, the change of China's stock market influence is closely related to exogenous factors, which deserves more attention for policy making to avoid unnecessary trade and monetary friction owing to misjudgment.

Keywords: China stock market; International commodity market; Multi-scale impact; Time-varying influence (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:61:y:2019:i:c:p:564-571

DOI: 10.1016/j.resourpol.2018.06.009

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