| The study of the relationship between oil and stock markets has been receiving much attention.Among them,as China becomes more and more important to the global economy and the international oil market,the impact analysis of the international oil market on the Chinese stock market has become popular.Currently,international oil prices are showing drastic changes,and traditional supply and demand theories are no longer able to explain these changes,while the financialization of oil is generally considered to play an important role in the current process of international oil price changes.In this context,what kind of changing characteristics international oil prices exhibit and how oil price shocks driven by supply,demand,and financialization affect the stock market become an issue that academics and practitioners are eager to understand in depth.Kilian(2009)pioneers the method of decomposing oil prices based on different sources,but the method is mainly applied to monthly data,containing insufficient market information;meanwhile,the demand factor is given too much weight and the influence of financial factors is not fully considered.While the new decomposition method proposed by Ready(2018)can obtain daily frequency oil price supply shocks,oil price demand shocks,and oil price risk shocks that are closely linked to financial factors,however,the related studies are still very inadequate.Based on the above considerations,this paper first investigates the complex relationship between financial market uncertainty(VIX),speculation,and international oil prices under the important background premise of oil financialization,thereby providing insight into the characteristics of oil price changes in the context of oil financialization.Afterward,the decomposition method of Ready(2018)and daily data are used to investigate the complex effects of oil price supply shocks,oil price demand shocks,and oil price risk shocks on Chinese stock market returns,volatility,and risk-return relationships by combining multiple perspectives such as heterogeneity of market conditions,time-varying variable relationships,and industry differences.In addition,this paper focuses on distinguishing subsamples for analysis based on oil financialization characteristics.The main empirical procedures and important findings are as follows.This paper first investigates the nonlinear and time-varying relationships among the VIX,speculation,and oil prices using the HJ and DP tests and the TVP-VAR model.The empirical results of the HJ and DP tests find that the VIX unidirectionally and nonlinearly guides speculative activity and oil price changes in the oil market.In addition,there is a nonlinear causal relationship from oil price changes to speculation.the results of the TVP-VAR model,on the other hand,indicate that VIX has more significant positive and negative effects on speculation and oil price changes,respectively,after oil financialization;speculation first has a positive effect on oil price changes after oil financialization and then turns negative;and the oil market mainly shows an increase in speculative activities due to oil price decline after oil financialization.Second,this paper investigates the heterogeneous impact of international oil price structural shocks on Chinese stock market returns using Ready’s(2018)decomposition method and quantile regressions.The empirical results show that in the pre-oil financialization period,oil price supply and demand shocks negatively affect stock market returns during extreme market downturns.In the post-oil financialization period,the impact of oil price supply shocks is insignificant;oil price demand shocks positively affect stock market returns,but there is no heterogeneity;oil price risk shocks negatively affect stock market returns,but this negative effect is stronger in the more extreme market downturns.From the perspective of industry differences,this paper further investigates the impact of oil price structural shocks on Chinese industry stock returns using quantile regressions.The empirical results show that in the post-oil financialization period,oil price supply shocks do not affect the vast majority of industry stock returns;oil price risk shocks show stronger effects on the industry stock returns in periods of extreme market downturns except for the financial industry.Finally,oil price demand shocks positively affect all industry stock returns,but the effect on energy and financial industries is approximately U-shaped with quantile variation,and the effect on materials,industrial and optional industry returns is stronger in periods of the market downturn.Then,this paper investigates the volatility spillover effects of oil price structural shocks and the Chinese stock market using the DY methodology.The empirical results show that the volatility spillover effects of oil price demand shocks and oil price risk shocks on China’s overall stock market are significantly stronger in the post-oil financialization period,and generally,have larger volatility spillover effects than oil price supply shocks.Meanwhile,the volatility spillovers from oil price demand shocks and oil price risk shocks to China’s overall stock market have time-varying characteristics,with larger volatility spillovers often associated with events that affect the demand side of oil and financial market stability.In addition,compared to oil price supply shocks,the time-varying volatility spillover effects of the oil price demand and risk shocks on Chinese industry stocks have more prominent sectoral differences.Finally,to assess whether oil price shocks from different sources also shape the relationship between stock market risk and return,this paper constructs time-varying risk-return indicators for China’s overall stock market and industry stocks based on previous studies,and thus analyzes the impact of oil price structural shocks on the risk-return relationship of China’s stock market using Granger causality tests and regression models.The empirical results show that oil price supply shocks do not change the risk-return relationship of the Chinese stock market in the pre-and post-oil financialization periods.On the contrary,oil price demand shocks and oil price risk shocks positively and negatively lead to changes in the risk-return relationship of the Chinese stock market in the post-financialization period,and there is no significant sectoral variation.Compared with previous studies on the oil-stock market relation,this paper helps to better understand the characteristics of international oil price movements in the context of oil financialization and expands the research on the relation between oil price structural shocks and the stock market from different sources.It also has important practical guidance for oil policy formulation in the context of oil financialization,cross-market and cross-industry investment strategy design,and protection against oil price shock risks from different sources under different market conditions in the Chinese stock market. |
