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The US-China tension and fossil fuel energy price volatility relationship

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  • Li, Sitong
  • Chen, Huangen
  • Chen, Gengxuan

Abstract

Tensions in the US-China relationship and strategies such as trade sanctions and rare earth controls implemented in recent years affect the import and export shares of fossil fuels in both countries. Therefore, this paper evaluates the influence of the US-China Tension Index (UCT) on the price volatility of fossil fuels under the GARCH-MIDAS model structure. Using a rolling window approach for parameter estimation and generating forecasts, the results show that an increase in tension between the two countries raises the energy price volatility and the double asymmetric GARCH-MIDAS-UCT model beats the rest of the competition.

Suggested Citation

  • Li, Sitong & Chen, Huangen & Chen, Gengxuan, 2025. "The US-China tension and fossil fuel energy price volatility relationship," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017367
    DOI: 10.1016/j.frl.2024.106707
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    More about this item

    Keywords

    US-China tension; Fossil fuel; Volatility forecasting; GARCH-MIDAS;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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