Geopolitical Risk and China’s Crude Oil Futures: An Empirical Study Based on the Cross-Quantilogram Approach

Min Liu, Wei-Ying Ping and Chien-Chiang Lee ()

Emerging Markets Finance and Trade, 2025, vol. 61, issue 2, 453-475

Abstract: This paper aims to investigate the relationship between geopolitical risk (GPR) and the return of the first international crude oil futures (COFs) in China (INECOFs) using the daily data from March 26, 2018, to April 30, 2024. The novelty of this paper is that the dependence structure is uncovered under the quantile-varying, time-varying, and lead-lag framework. This is crucial considering the nonlinear dynamics of the INECOFs return and the sudden change of the geopolitical risk. We adopt a novel cross-quantilogram approach (CQA) with or without controlling for the external factors. A comparison is made between INECOFs and global benchmarks. We find a negligible and mostly insignificant correlation between GPR and COFs return. The response of the COFs return to the geopolitical shock is quantile-dependent and rapidly diminishing. We also find that INECOFs are more likely to respond to the geopolitical shock while the market is in bullish conditions. The results are robust after the extreme external shocks from different areas are controlled. Moreover, the recursive cross-quantile correlation suggests that the quantile dependence between GPR and INECOFs return tends to be more fluctuated. A structural break was detected in the dependence structure during the outbreak of the COVID-19 pandemic. Further study suggests that geopolitical shock is unlikely to bring systematic risks to the studied COFs market at any quantile during the sampling period. We recommend that more attention to be allocated to geopolitical events, while the INECOFs are at their upper quantile. We contribute to the literature on the connection between geopolitical risk and COFs both in bivariate and multivariate structure perspectives, and we enrich the literature on INECOFs by revealing their responses to geopolitical events.

Date: 2025
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DOI: 10.1080/1540496X.2024.2386125

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