The Time-Varying Connectedness Between China’s Crude Oil Futures and International Oil Markets: A Return and Volatility Spillover Analysis

This paper examines the relationship between world crude oil markets following the introduction of Shanghai crude oil futures from the perspective of network connectedness based on the vector autoregressive model. The connectedness measurement method proposed by Diebold and Yilmaz (Econ J 119(534):158–171, 2009, Int J Forecast 28(1):57–66, 2012. https://doi.org/10.1016/j.ijforecast.2011.02.006 , J Econom 182(1):119–134, 2014. https://doi.org/10.1016/j.jeconom.2014.04.012 ) is adopted to study a time-varying interdependence relationship. The empirical results show that the world crude oil markets exhibit a high degree of integration from both returns and volatility; however, the direction and magnitude contributed by each market varies significantly. Specifically, the West Texas Intermediate futures and Brent spot and futures markets were found to have the highest contributions to the world oil market over the entire sample period and take leading roles, whereas Dubai futures market was found to be the most important receiver, and has received the most spillover from other markets and passed it throughout the system. Shanghai crude oil futures is not yet highly connected with other markets. Moreover, heterogeneous changes in the direction, intensity, and persistence of the spillover were observed across markets after the outbreak of the COVID-19 pandemic in 2020. This study reveals the integration level of Shanghai crude oil futures and the dynamics of linkages between regional crude oil markets, which is of great significance for market participants, policymakers, and future researchers.