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Asymmetric and time-frequency volatility connectedness between China and international crude oil markets with portfolio implications

Author

Listed:
  • Liu, Zhenhua
  • Ji, Qiang
  • Zhai, Pengxiang
  • Ding, Zhihua

Abstract

This paper tries to examine asymmetric and time-frequency volatility connectedness between the Chinese crude oil futures market and international oil benchmarks. To this end, we separate the realized volatility as bad or good volatility and decompose the aggregate volatility connectedness among these oil markets into the short-, medium-, and long-term components. Our results first show that these crude oil markets are highly connected, whereas the Chinese crude oil futures market is a net receiver in the volatility system. Second, the spillover effect caused by bad volatility is significantly different from that of good volatility, revealing significant asymmetry in the volatility spillovers. Third, the volatility spillovers in the short-term frequency band account for the most of total volatility spillovers. Finally, our results prove that the volatility connectedness information among different oil markets helps design trading strategies and shed light on the arbitrage opportunities in the Chinese new crude oil futures market.

Suggested Citation

  • Liu, Zhenhua & Ji, Qiang & Zhai, Pengxiang & Ding, Zhihua, 2023. "Asymmetric and time-frequency volatility connectedness between China and international crude oil markets with portfolio implications," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001654
    DOI: 10.1016/j.ribaf.2023.102039
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    More about this item

    Keywords

    Oil market; Time-frequency domain; Volatility spillovers; High-frequency data; Trading strategy;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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