Asymmetric impact of global crude oil on Chinese sectors and optimal portfolio strategies: An analysis of the higher-order moment tail risk spillovers

In the context of highly volatile international crude oil markets, tail risk connections among sectors have become increasingly strengthened. This research analyses the tail risk connectedness of Chinese sectors from a higher-order moments perspective, and how such connectedness is driven by crude oil. We propose a novel QVAR-DY-NARDL framework and the results show prominent asymmetry features of the tail effects. In particular, when the skewness risk of Chinese industries is at an extremely low quantile, an upward trend in oil prices significantly reduces long-term connectedness. When the market is overheated, an upward trend in oil prices will contribute to a short-term decline in systemic risk. In contrast, it may slightly increase sectoral connectedness over the long term. Furthermore, the kurtosis-based connectedness of sectoral markets is more sensitive to crises and becomes virtually unaffected by crude oil at extremely high quantiles. Finally, from the perspective of portfolio construction, the minimum connectedness portfolios considering extreme negative skewness or extreme high kurtosis outperform other allocation strategies.