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Chinese Crude Oil Futures and Sectoral Stocks: Copula-Based Dependence Structure and Connectedness

Author

Listed:
  • Imran Zulfiqar A.

    (Lahore Business School, The University of Lahore, Main Campus, Lahore, Pakistan)

  • Ahad Muhammad

    (School of Management and Economics, Beijing Institute of Technology, Beijing, China)

  • Ahmad Mobeen

    (Department of Management Science, COMSATS University Islamabad, Lahore Campus, Lahore, Pakistan)

  • Hameed Imran

    (Faculty of Business, Sohar University, Sohar, Oman)

Abstract

China launched its first crude oil futures on 18th March 2018, with the primary objective of introducing its own hedging instrument in China. Our study responds to this objective by investigating the dependence structure based on time-variant and time-invariant copula, connectedness in various market conditions, and hedging effectiveness of oil futures with eleven GICS sectors in China using daily returns data from 19th June 2019 to 24th February 2024. Findings suggest that time-varying copula is a best fit for all the GICS sectors in China except for the Energy. Similarly, the results of time-varying (TVP-VAR) connectedness indicate that the oil futures are the net receiver of shocks in total, short (1–5 days), and long-time (5 to infinity) spillover. The oil futures can better offset portfolio losses during the down market than normal and up markets. Lastly, based on TVP-VAR, the hedging ratio, optimum portfolio weights, and hedge effectiveness are calculated. We find a positive hedge ratio across various pairs of assets, which reduces the assets’ volatility. Moreover, hedge ratios and optimum portfolio weights are non-constant over time. Our results significantly contribute to the scant literature on Chinese crude oil futures and have implications for investors and policymakers.

Suggested Citation

  • Imran Zulfiqar A. & Ahad Muhammad & Ahmad Mobeen & Hameed Imran, 2025. "Chinese Crude Oil Futures and Sectoral Stocks: Copula-Based Dependence Structure and Connectedness," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 29(3), pages 367-404.
    • Handle: RePEc:bpj:sndecm:v:29:y:2025:i:3:p:367-404:n:1005
    DOI: 10.1515/snde-2023-0083
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    More about this item

    Keywords

    Chinese crude oil futures; Chinese sectoral stocks; static and dynamic copula; time-frequency connectedness; hedging effectiveness; diversification;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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