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Oil prices and stock market in China: A sector analysis using panel cointegration with multiple breaks

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  • Li, Su-Fang
  • Zhu, Hui-Ming
  • Yu, Keming
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    Abstract

    This paper investigates the relationship between oil prices and the Chinese stock market at the sector level. In a panel cointegration and Granger causality framework, the major sectors in China are studied using data collected from July 2001 to December 2010. When the effects of cross-sectional dependence and multiple structural breaks are taken into account, the panel cointegration relationship between oil prices and stock prices is confirmed at the disaggregated sector level. The results indicate that there is some evidence of structural breaks in the interaction between oil prices and Chinese sectoral stocks. The long-run estimates suggest that the real oil price has a positive effect on sectoral stocks in the long run. The Granger causality tests demonstrate a unidirectional, short-run Granger causality relationship running from oil prices and sectoral stocks to the interest rate for 2001/07–2005/10. There is also a unidirectional, long-run Granger causality running from sectoral stocks to the interest rate for 2001/07–2005/10 and 2005/12–2007/06. However, the long-run Granger causality is bidirectional between oil prices, the interest rate and sectoral stocks for 2007/08–2008/11 and 2009/01–2010/12. Meanwhile, the short-run Granger causality is also bidirectional between the interest rate and oil prices.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 6 ()
    Pages: 1951-1958

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:1951-1958

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    Web page: http://www.elsevier.com/locate/eneco

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    Keywords: Oil prices; Stock prices; Panel cointegration; Cross-sectional dependence; Granger causality;

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    Cited by:
    1. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    2. Moya-Martínez, Pablo & Ferrer-Lapeña, Román & Escribano-Sotos, Francisco, 2014. "Oil price risk in the Spanish stock market: An industry perspective," Economic Modelling, Elsevier, vol. 37(C), pages 280-290.
    3. Guglielmo Maria Caporale & Faek Menla Ali & Nicola Spagnolo, 2014. "Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach," CESifo Working Paper Series 4881, CESifo Group Munich.
    4. repec:wyi:wpaper:002210 is not listed on IDEAS

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