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Causality between oil prices and the stock market in China: The relevance of the reformed oil product pricing mechanism

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  • Bouri, Elie
  • Chen, Qian
  • Lien, Donald
  • Lv, Xin

Abstract

The refined oil pricing reform of March 27, 2013, was a major step toward the adoption of market-oriented pricing by making timelier, more frequent adjustments to domestic oil prices in China. However, the prior literature does not consider the impact of this reform in its assessment of the mean and risk dynamics between international oil prices and the Chinese stock market. To address this limitation, this paper employs the cross-correlation function (CCF) approach and reports evidence that this reform has led to a time-varying dimension in the dynamics of the mean and variance linkages between the international oil market and the Chinese stock market. The estimated results indicate that the causality-in-mean between the two markets strengthened after the reform of March 27, 2013, whereas the causality-in-variance almost disappeared after that date. Rigorous robustness analyses confirm these results, which can be useful to both investors and policy-makers.

Suggested Citation

  • Bouri, Elie & Chen, Qian & Lien, Donald & Lv, Xin, 2017. "Causality between oil prices and the stock market in China: The relevance of the reformed oil product pricing mechanism," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 34-48.
  • Handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:34-48
    DOI: 10.1016/j.iref.2016.11.004
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    Cited by:

    1. repec:gam:jsusta:v:10:y:2018:i:1:p:261-:d:127843 is not listed on IDEAS
    2. Jose Eduardo Gomez-Gonzalez & Jorge Hirs-Garzon, 2017. "Uncovering the time-varying nature of causality between oil prices and stock market returns: A multi-country study," Borradores de Economia 1009, Banco de la Republica de Colombia.
    3. repec:eee:reveco:v:49:y:2017:i:c:p:453-483 is not listed on IDEAS
    4. repec:eee:quaeco:v:67:y:2018:i:c:p:149-161 is not listed on IDEAS
    5. repec:eee:eneeco:v:68:y:2017:i:c:p:1-18 is not listed on IDEAS

    More about this item

    Keywords

    China's refined oil pricing mechanism; Brent oil price; China's sectoral indices;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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