The Impact Of International Oil Price On The Stock Prices Of Domestic Oil Related Industries

The energy industry is a significant pillar of the economic construction in China nowadays.Oil is an essential factor of production in almost all industries.The real economy in China has a rapid growth,the demand for oil in various domestic industries has only increased,and oil has become a decisive strategic material closely related to the sustainable growth of the real economy.However,domestic oil supply has long been unable to satisfy industrial construction and the needs of domestic residents.In China,the imports of oil have increased rapidly and the degree of dependence on international oil exceeds 70%.In recent years,international oil price has fluctuated frequently.In January 2020,COVID-19 broke out,international oil price began to fall rapidly.Its instability would affect the real economy through consumer terminals.At the same time,the domestic oil market has become financialized gradually,many domestic and foreign investors have invested in oil-related financial products,the international oil market has made a linkage with the domestic stock market.This article starts from the perspective of various industries,we divide oil-related industries into oil-production industries,oil-consumption industries,and oil-substitution industries.We discuss the influences of international oil price on the stock indexes of various industries,which include dynamic correlations and risk spillover effects.This article selects WTI Crude Oil Futures as a representative,we select the data from 2005 to 2020.The first step is to use AR(1)-GARCH(1,1)to establish the marginal distribution.The second step is to use four time-varying Copulas to fit the data and select the best model.The third step is to use the best-fitting time-varying t-Copula model to calculate the dynamic correlation.The last step is to use CoVaR,ΔCoVaR,%CoVaR to calculate the risk spillover effects of international oil price on several different industries.The conclusions we reach are as follows:First,let us talk about the dynamic correlations between international oil price and domestic oil-related industries.The correlations between international oil price and the five domestic oil-related industries reflect different characteristics,the international oil price has the strongest correlation with the energy industry and the weakest correlation with the public utility industry.In addition,during the period of the financial crisis in 2008 and the period of COVID-19,the dynamic correlations increased significantly.Second,let us talk about the risk spillover effects between international oil price and domestic oil-related industries.The risk spillover effects of international oil price to the five domestic oil-related industries reflect different characteristics,the international oil price has the strongest risk spillover effect with the energy industry and the weakest effect with the optional consumer industry.In addition,during period of the financial crisis in 2008 and the period of COVID-19,the risk spillover effects increased significantly.During the COVID-19 period,the risk spillover effect was strongest.And the risk spillover effects of international oil price to the domestic oil-related industries obviously exceeded the risk spillover effects of the domestic oil-related industries to international oil price.Finally,in order to reduce loss during oil price fluctuation,this article puts forward certain policy recommendations to policy makers and puts forward hedging suggestions to market investors.