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Tail Dependency and Risk Spillover between Oil Market and Chinese Sectoral Stock Markets—An Assessment of the 2013 Refined Oil Pricing Reform

Author

Listed:
  • Jiliang Sheng

    (School of Statistics, Jiangxi University of Finance and Economics, Nanchang 330013, China)

  • Juchao Li

    (School of Statistics, Jiangxi University of Finance and Economics, Nanchang 330013, China)

  • Jun Yang

    (F. C. Manning School of Business Administration, Acadia University, Wolfville, NS B4P 2R6, Canada)

Abstract

The Chinese refined oil pricing reform in 2013 has brought its refined oil price to be more aligned with the international oil price, helping to mitigate prior distorted pricing mechanisms. Its impact on the correlation, tail risks, and spillover effects between the international crude oil market and Chinese sectoral stock markets warrants empirical assessments. Time-varying copula models and conditional VaR (CoVaR) are employed to examine the correlation between the international oil market and Chinese sectoral stock indexes before and after the 2013 pricing reform, as well as the tail risk and spillover effects of the extreme and moderate oil markets. The results show that: (1) the correlation between the oil market and all 11 Chinese stock sectors is positive both before and after the reform, but the correlation is weaker after the reform than before; (2) The downside tail risk of the extreme and moderate oil markets to most Chinese stock market sectors, and the upside tail risk of the moderate oil market to most stock sectors are lower after the reform; (3) Tail risk spillover effects of extreme oil market on all sectors exist before and after the reform; (4) The upside tail risk spillover effects of moderate oil market exist in most sectors before the reform, but they almost all disappear after the reform. The downside risk spillover effects of the moderate oil market do not exist before or after the reform. The findings provide valuable references for portfolio management and future policy update.

Suggested Citation

  • Jiliang Sheng & Juchao Li & Jun Yang, 2022. "Tail Dependency and Risk Spillover between Oil Market and Chinese Sectoral Stock Markets—An Assessment of the 2013 Refined Oil Pricing Reform," Energies, MDPI, vol. 15(16), pages 1-19, August.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:16:p:6070-:d:894142
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