Does oil product pricing reform increase returns and uncertainty in the Chinese stock market?

Xiaoqian Wen, Elie Bouri () and David Roubaud ()

The Quarterly Review of Economics and Finance, 2018, vol. 68, issue C, 23-30

Abstract: This paper examines whether and to what extent the oil product pricing reform in 2013 has affected uncertainty in the Chinese stock market at both the aggregate and sectoral levels. Based on daily data from 17 March 2011 to 27 March 2015 and univariate GARCH-based modelling augmented with interaction terms, the main empirical results can be summarized as follows: first, the 2013 reform has improved the risk-return pattern of the Chinese aggregate stock market. Second, since the reform, Chinese sectoral stocks have become more sensitive to the price adjustments of oil products. In particular, upward price adjustments impose larger effects on stock market volatility than downward price adjustments, primarily leading to a significant reduction in stock market volatility. Counter-intuitively, the main conclusions show that China’s 2013 oil product pricing reform has significantly reduced the risks of stock investments and financing, implying that a market-oriented pricing mechanism can actually decrease the financial market uncertainty surrounding domestic oil product price adjustments.

Keywords: Oil product pricing reform; Aggregate stock price uncertainties; Sectoral stock indices; ARMAX-GARCH; China (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:68:y:2018:i:c:p:23-30

DOI: 10.1016/j.qref.2017.08.003

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