Research On The Impacts Of International Crude Oil Price Shocks On China’s Stock Market Under Economic Policy Uncertainty

Crude oil is an important raw material for industrial production.The research on the interaction and transmission mechanism between oil price and stock market has always been one of the important issues on risk prevention and financial regulation.Since the beginning of the 21^st century,the global financial crisis triggered by the subprime mortgage crisis and the European debt crisis has been spreading its influence on the world economy,with ups and downs in the oil market and stock market,and the increasing of global economic uncertainty as well as the risk transmission across different markets.In order to maintain the stable development of the domestic economy,the goveronments in many countries frequently issued a series of economic policies such as fiscal,monetary and regulatory policies,which led to increased policy uncertainty.It can be seen that the interaction between crude oil market and stock market is not isolated from economic policy uncertainty,but complex internal relations exist with them.With the increasing dependence of China’s crude oil on foreign markets,China’s stock market will continue to face the risk of international oil price shocks.Moreover,China’s economic operation is at a specific stage of“three-period superposition”,including the economic growth rate shift period,the structural adjustment pain period,and the previous stimulus policy digestive period.And China’s stock market has obvious policy intervention characteristics.In this context,it is of great practical significance to explore the mechanism of economic policy uncertainty in the transmission of international oil price shocks to the stock market.This study incorporates economic policy uncertainty into the oil-stock nexus,and constructs a theoretical analysis framework of“crude oil price shock-economic policy uncertainty-stock market”.Starting from the two dimensions of the aggregate stock market and industrial stock market,this paper first decomposes the international oil price shock into oil supply shock,aggregate demand shock and specific demand shock,then combines time-varying parameter structure vector autoregressive（TVP-SVAR-SV）model,volatility spillover index method,rolling window analysis technique,dynamic conditional correlation（DCC）-mixed-data sampling（MIDAS）model and Markov regime switching model,revealing the role of economic policy uncertainty in the oil-stock nexus by studying the mechanism,path and structure of the impact of different types of oil price shocks on stock market through the economic policy uncertainty channel at the return and volatility level,as well as regime linkage between economic policy uncertainty and the long-term correlation between oil and stock market.Finally,based on the conclusions of empirical research,this dissertation puts forward specific policy suggestions from the perspectives of policy makers,market investors and financial regulators.The main research contents and conclusions of this dissertation are as follows:（1）The dynamic impact of international crude oil price shocks on China’s stock market returns under economic policies uncertainty.Firstly,the international oil price shocks caused by different reasons have different effects on stock market returns.The oil specific demand shock has the largest impact on stock market returns,followed by the aggregate demand shock,while the impact of oil supply shock is relatively weak.Secondly,economic policy uncertainty provides channels for the impact of international oil price shock on stock market returns.Oil specific demand shock increases economic policy uncertainty significantly,and decreases stock market returns.The increase of economic policy uncertainty has a significant negative impact on global oil production,real price of crude oil and stock market returns.Meanwhile,oil aggregate demand shock reduces economic policy uncertainty and eventually increases stock market returns.Thirdly,the impact of international oil price shock and economic policy uncertainty on stock market returns has significant time-varying characteristics.In the period of economic turmoil,stock market returns are more sensitive to oil prices and economic policy uncertainty.（2）Dynamic spillover effects between international crude oil price shocks and China’s stock market volatility under economic policy uncertainty.The spillover index analysis shows that there is a significant time-varying spillover effect among oil price shocks,economic policy uncertainty and stock market volatility,with the total spillover index changing within the range of 10%to 40%,among which the structural oil price shocks play a dominant role in the transmission of volatility spillovers.Especially in the period of unstable economic policy environment,the volatility spillover index increases significantly,reaching 36%in November 2008.The spillover network analysis shows that the oil supply shock is the net receiver of volatility spillovers,while the aggregate demand shock and specific demand shock are the net transmitter of volatility spillovers,the economic policy uncertainty and stock market volatility are the net receivers of spillovers from oil demand shocks.In addition,both oil aggreagte demand shock and specific demand shock have spillover effects on the stock market volatility through economic policy uncertainty,which further verifies that economic policy uncertainty provides a channel for the transmission of oil price shock to the stock market.From the perspective of industrial differences,the stock markets of energy,industry,public utilities and financial sector are more connected with oil price shocks and economic policy uncertainty,while the stock markets of information technology,telecom service,healthcare and consumer commodities are less connected with oil price shocks and economic policy uncertainty.（3）The impact of economic policy uncertainty on the dynamic correlation between international crude oil market and China’s stock market.The dynamic correlation between crude oil and stock market has characteristics mean reversion,and its short-term component changes around the long-term trend.Long-term dynamic correlations remain low during booms and recoveries,and rise sharply during recessions（such as the global financial crisis）remaining high and volatile.The regime linkage analysis shows that in the regime with high long-term dynamic correlation and large fluctuation range,the increase of economic policy uncertainty strengthens the long-term dynamic correlation between the two markets.However,in the regime with low long-term dynamic correlation and small fluctuation range,the effect of economic policy uncertainty is very weak.Industry analysis shows that economic policy uncertainty has stronger impcats on long-term dynamic correlations between crude oil market and stock markets of energy,finance,industry,materials and utilities,while the impact of economic policy uncertainty on the long-term dynamic correlations between crude oil market and stock markets of consumer staples and healthcare is relatively weak.（4）Based on the empirical research conclusions,relevant policy recommendations are proposed from the perspectives of policy makers,market investors and financial regulators.Policy makers should not only maintain the continuity and stability of policies to reduce the uncertainty of economic policies,but also grasp the timing of the implementation of economic policies to achieve timely and appropriate macroeconomic regulation and control,and take different measures in response to oil price shocks caused by different reasons.Market investors need to pay close attention to changes of economic policies,dynamically adjust investment strategies,understand the industrial influences of oil price shocks,and construct diversified portfolios.Financial regulators should pay attention to the dynamics of market linkages,shift to the regulatory concept of“too interconnected to fail”that focuses on the risk transmission across markets.Also,financial regulators should moderately play a regulatory role in the markets,try to avoid direct policy intervention,improve the ability of risk monitoring and control,to achieve a balance between financial stability and efficiency.There are 40 figures,24 tables and 369 references in the paper.