A Study On The Diffusion Of International Crude Oil Price Shocks On Chinese Stock Market Volatility Networks

Crude oil is one of the most important natural resources in modern society and plays an indispensable role in the economic development of all countries.Many scholars have studied the impact of crude oil price on the stock market,but the current research pays more attention to the direct impact of crude oil price on the stock market.Considering that the correlation between financial assets may become the way of risk diffusion,this dissertation studies whether the crude oil price shock can spread through the volatility network of China’s stock market,which will have a significant indirect impact on the whole stock market.In order to characterize the internal correlation of China’s stock market,this dissertation divides the stock market into 28 industries,and uses PCQ method to test the correlation between the index volatility of each industry at different quantile levels.Based on this correlation,this dissertation constructs the volatility network of China’s stock market,comprehensively shows the industry correlation of China’s stock market,and uses SAR model to estimate the direct impact of international oil price changes on China’s stock market and the indirect impact transmitted through the volatility network,so as to analyze the diffusion phenomenon of oil price impact.The empirical results show that there are significant diffusion phenomena and risk contagion phenomena in the impact of crude oil prices on China’s stock market,that is,the direct impact of oil price changes on the stock market spreads in the stock market volatility network through industry correlation,resulting in significant indirect impact on the stock market.The direction of this indirect impact is the same as that of the direct impact,which contributes to a larger overall impact and confirms the existence of risk contagion effect.The above results show that the network connection between various industries in the stock market may be an important mechanism for the diffusion of crude oil price risk.In addition,this dissertation finds that the industry connection of the stock market is related to the data frequency and market conditions.The selection of sample data frequency and the degree of market volatility may affect the diffusion of oil price shocks in the stock market.Finally,based on the empirical results,this dissertation puts forward corresponding suggestions for financial investors,market regulators and policy makers.