Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach

Caporale, Guglielmo Maria; Menla Ali, Faek; Spagnolo, Nicola

doi:10.2139/ssrn.2459803

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Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach

DIW Berlin Discussion Paper No. 1394

29 Pages Posted: 28 Jun 2014

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Faek Menla Ali

University of Sussex

Nicola Spagnolo

Brunel University London - Economics and Finance

There are 2 versions of this paper

Date Written: June 2014

Abstract

This paper investigates the time-varying impact of oil price uncertainty on stock prices in China using weekly data on ten sectoral indices over the period January 1997-February 2014. The estimation of a bivariate VAR-GARCH-in-mean model suggests that oil price volatility affects stock returns positively during periods characterized by demand-side shocks in all cases except the Consumer Services, Financials, and Oil and Gas sectors. The latter two sectors are found to exhibit a negative response to oil price uncertainty during periods with supply-side shocks instead. By contrast, the impact of oil price uncertainty appears to be insignificant during periods with precautionary demand shocks.

Keywords: China, Oil price uncertainty, Sectoral stock returns

JEL Classification: C32, Q43

Suggested Citation: Suggested Citation

Caporale, Guglielmo Maria and Menla Ali, Faek and Spagnolo, Nicola, Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach (June 2014). DIW Berlin Discussion Paper No. 1394, Available at SSRN: https://ssrn.com/abstract=2459803 or http://dx.doi.org/10.2139/ssrn.2459803