Global Oil Shocks and China’s Commodity Markets: The Role of OVX

Xuejun Jin and Fangfei Zhu

Emerging Markets Finance and Trade, 2021, vol. 57, issue 3, 914-929

Abstract: This paper investigates the effects of global oil shocks on the returns and volatilities of Chinese commodities from 1997 to 2016. We identify the different causes of oil shocks by using a structural vector autoregressive (SVAR) model. Particularly, we employ the crude oil volatility index (OVX) issued by the Chicago Board Options Exchange (CBOE) to proxy for the oil volatility shock and differentiate it from oil price shocks. Results indicate that both the responses of returns and volatilities of China’s commodities differ depending on the underlying causes of global oil shocks. Furthermore, the OVX shock has significant negative effects on the returns and positive effects on the realized volatilities of Chinese commodities, while the impacts of oil shocks caused by changes in oil supply and global economic activity are insignificant and negligible, especially after the 2008 financial crisis.

Date: 2021
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DOI: 10.1080/1540496X.2019.1658075

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