Skip to content

Research at St Andrews

Measuring contagion effects between crude oil and Chinese stock market sectors

Research output: Contribution to journalArticle

Author(s)

Sheng Fang, Paul Egan

School/Research organisations

Abstract

The role of cross-market linkages in the occurrence of tail events in stock and energy markets has not yet been fully understood in the contagion literature. This paper investigates the contagion from oil prices to Chinese stock sectors by considering differences between extreme positive returns and extreme negative returns. We compute time-varying cut-offs by employing a generalized Pareto distribution (GPD) function to estimate excess returns. We then use a multinomial logit (MNL) model to examine the probability of Chinese stock sector co-exceedances associated with oil price exceedances. Our results indicate that, compared to common domestic factors, the contagion between oil price and stock sectors is relatively weak, but never negligible. We argue that faced with volatile oil prices during turbulent periods, the existence of any contagion weakens the benefits of portfolio diversification related to oil and Chinese stock sector investment. Based on our findings, investors holding a portfolio of oil and Chinese sector stocks should pay special attention to the extreme changes in crude oil prices and adopt hedging measures to protect their portfolio from extreme shocks to oil markets.
Close

Details

Original languageEnglish
Pages (from-to)31-38
Number of pages8
JournalQuarterly Review of Economics and Finance
Volume68
Early online date15 Nov 2017
DOIs
Publication statusPublished - May 2018

    Research areas

  • Contagion, Oil market, Chinese stock sectors, Co-exceedances, Extreme returns

Discover related content
Find related publications, people, projects and more using interactive charts.

View graph of relations

Related by journal

  1. Volatility Persistence, Long Memory and Time-Varying Unconditional Mean: Evidence from 10 Equity Indices

    McMillan, D. G. & Ruiz, I., May 2009, In : Quarterly Review of Economics and Finance. 49, 2, p. 578-595

    Research output: Contribution to journalArticle

  2. The Determinants of Momentum in the United Kingdom

    McKnight, P. J. & Hou, T. CT., May 2006, In : Quarterly Review of Economics and Finance. 46, 2, p. 227-240

    Research output: Contribution to journalArticle

ID: 251534451

Top