Measuring contagion effects between crude oil and Chinese stock market sectors
MetadataShow full item record
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.
Fang , S & Egan , P 2018 , ' Measuring contagion effects between crude oil and Chinese stock market sectors ' , Quarterly Review of Economics and Finance , vol. 68 , pp. 31-38 . https://doi.org/10.1016/j.qref.2017.11.010
Quarterly Review of Economics and Finance
© 2017, Board of Trustees of the University of Illinois. Published by Elsevier Inc. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.qref.2017.11.010
Items in the St Andrews Research Repository are protected by copyright, with all rights reserved, unless otherwise indicated.