Research On The Time-varying Impact Of International Crude Oil Price Shock On Chinese Stock Returns

Crude oil is one of the most important energy sources in the world today.Historical evidence suggests that every big fluctuation of world crude oil prices has had a huge impact on the world economy.Therefore,the relationship between oil prices and the economy is at the center of the macroeconomic debate.While the stock market is a barometer of the economy,if crude oil prices change over time and have an impact on the real economy,the impact of crude oil prices will have a time-varying and observable impact on the stock market.The close connection between crude oil prices and stock market returns is not only an indicator for investors to invest or speculate in the stock market,but also arouse scholars’ interest in research.This paper draws lessons from Kilian’s(2009)and divides crude oil price shocks into three kinds according to its determinant factors: crude oil supply shocks;shocks to the global demand for all industrial commodities;and demand shocks that are specific to the global crude oil market.The traditional VAR model used in Kilian and Park(2009)was extended to the time-varying vector autoregressive model with stochastic volatility(TVP-SV-VAR),and we study the impact of three crude oil price shocks on China’s stock return firstly.TVP-SV-VAR can simultaneously reflect the changes of degree and depth in the impact of different types of oil price shocks on China’s stock market in different periods,so that we can further explore the internal links between the two markets.The study found that the impulse response of the stock return to three crude oil price shocks varies over time.The short-term impulse response varies little with time,while the mid-term and long-term shows significant time-varying characteristics.Specifically,among the three impacts of crude oil prices,the interruption of crude oil production has no significant effect on the stock return,while the rise in oil prices driven by the unexpected global economic expansion has a positive but delayed impact on the stock return.Moreover,the increase in crude oil prices caused by the higher precautionary demand associated with market concerns about the availability of future oil supplies has caused a negative,immediate,sustained and relatively large impulse response to the stock return.The paper also finds that the impulse response of both supply shock and precautionary demand shock during natural disasters is greater than that during the financial crisis and war,and after extreme weather,the impact of precautionary demand on the stock market is not only rapid,but also sustained.Inaddition,the impact of aggregate demand shocks on the stock market is higher during the global financial crisis.