IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v40y2020i6p860-884.html
   My bibliography  Save this article

Return and volatility transmission between China's and international crude oil futures markets: A first look

Author

Listed:
  • Jian Yang
  • Yinggang Zhou

Abstract

We examine return and volatility transmission between the newly established crude oil futures in China and international major crude oil futures markets using intraday data. For the first time, we document evidence for cointegration relationships among these oil futures markets. Both China's and Oman's oil futures markets react to deviations from their long‐run equilibrium with West Texas Intermediate and Brent oil futures. There is also new evidence for asymmetric volatilities and correlations across these oil futures markets. Furthermore, the Chinese oil futures have stronger linkages with the international major futures markets than Oman futures.

Suggested Citation

  • Jian Yang & Yinggang Zhou, 2020. "Return and volatility transmission between China's and international crude oil futures markets: A first look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 860-884, June.
  • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:6:p:860-884
    DOI: 10.1002/fut.22103
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/fut.22103
    Download Restriction: no

    File URL: https://libkey.io/10.1002/fut.22103?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    2. Andersen, Torben G & Bollerslev, Tim, 1997. "Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns," Journal of Finance, American Finance Association, vol. 52(3), pages 975-1005, July.
    3. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," The Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
    4. Fleming, Jeff & Kirby, Chris & Ostdiek, Barbara, 1998. "Information and volatility linkages in the stock, bond, and money markets," Journal of Financial Economics, Elsevier, vol. 49(1), pages 111-137, July.
    5. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2011. "Crude oil hedging strategies using dynamic multivariate GARCH," Energy Economics, Elsevier, vol. 33(5), pages 912-923, September.
    6. Jian Yang & Yinggang Zhou & Zijun Wang, 2010. "Conditional Coskewness in Stock and Bond Markets: Time-Series Evidence," Management Science, INFORMS, vol. 56(11), pages 2031-2049, November.
    7. Wai‐Man Liu & Emma Schultz & John Swieringa, 2015. "Price Dynamics in Global Crude Oil Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(2), pages 148-162, February.
    8. Yue Zhao & Difang Wan, 2018. "Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 243-270, February.
    9. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    10. Tao Wang & Jingtao Wu & Jian Yang, 2008. "Realized volatility and correlation in energy futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(10), pages 993-1011, October.
    11. Doron Avramov & Tarun Chordia & Amit Goyal, 2006. "The Impact of Trades on Daily Volatility," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1241-1277.
    12. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    13. Lin, Sharon Xiaowen & Tamvakis, Michael N., 2001. "Spillover effects in energy futures markets," Energy Economics, Elsevier, vol. 23(1), pages 43-56, January.
    14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    15. Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross‐Border Listings and Price Discovery: Evidence from U.S.‐Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-575, April.
    16. Hong Miao & Sanjay Ramchander & Tianyang Wang & Jian Yang, 2018. "The impact of crude oil inventory announcements on prices: Evidence from derivatives markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(1), pages 38-65, January.
    17. Galay, Gregory, 2019. "Are crude oil markets cointegrated? Testing the co-movement of weekly crude oil spot prices," Journal of Commodity Markets, Elsevier, vol. 16(C).
    18. Hung‐Gay Fung & Qingfeng “Wilson” Liu & Yiuman Tse, 2010. "The information flow and market efficiency between the U.S. and Chinese aluminum and copper futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(12), pages 1192-1209, December.
    19. Claudia Wellenreuther & Jan Voelzke, 2019. "Speculation and volatility—A time‐varying approach applied on Chinese commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(4), pages 405-417, April.
    20. Fung, Hung-Gay & Tse, Yiuman & Yau, Jot & Zhao, Lin, 2013. "A leader of the world commodity futures markets in the making? The case of China's commodity futures," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 103-114.
    21. Manuel A. Hernandez & Shahidur Rashid & Solomon Lemma & Tadesse Kuma, 2017. "Market Institutions and Price Relationships: The Case of Coffee in the Ethiopian Commodity Exchange," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 683-704.
    22. Chao Li & Dermot J. Hayes, 2017. "Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(1), pages 52-70, January.
    23. Kristoufek, Ladislav, 2014. "Leverage effect in energy futures," Energy Economics, Elsevier, vol. 45(C), pages 1-9.
    24. Yang, Jian & Leatham, David J., 1999. "Price Discovery in Wheat Futures Markets," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(2), pages 359-370, August.
    25. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-397, August.
    26. Fung, Hung-Gay & Leung, Wai K & Xu, Xiaoqing Eleanor, 2003. "Information Flows between the U.S. and China Commodity Futures Trading," Review of Quantitative Finance and Accounting, Springer, vol. 21(3), pages 267-285, November.
    27. Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross-Border Listings and Price Discovery: Evidence from U.S.-Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-576, April.
    28. Joseph P. Janzen & Michael K. Adjemian, 2017. "Estimating the Location of World Wheat Price Discovery," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1188-1207.
    29. Kao, Chung-Wei & Wan, Jer-Yuh, 2012. "Price discount, inventories and the distortion of WTI benchmark," Energy Economics, Elsevier, vol. 34(1), pages 117-124.
    30. Protopapadakis, Aris & Stoll, Hans R, 1983. "Spot and Futures Prices and the Law of One Price," Journal of Finance, American Finance Association, vol. 38(5), pages 1431-1455, December.
    31. Huayun Jiang & Jen‐Je Su & Neda Todorova & Eduardo Roca, 2016. "Spillovers and Directional Predictability with a Cross‐Quantilogram Analysis: The Case of U.S. and Chinese Agricultural Futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(12), pages 1231-1255, December.
    32. Elder, John & Miao, Hong & Ramchander, Sanjay, 2014. "Price discovery in crude oil futures," Energy Economics, Elsevier, vol. 46(S1), pages 18-27.
    33. Ross, Stephen A, 1989. " Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy," Journal of Finance, American Finance Association, vol. 44(1), pages 1-17, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Dan & Farnoosh, Arash & Lantz, Frédéric, 2022. "Does something change in the oil market with the COVID-19 crisis?," International Economics, Elsevier, vol. 169(C), pages 252-268.
    2. Huang, Xiaohong & Huang, Shupei, 2020. "Identifying the comovement of price between China's and international crude oil futures: A time-frequency perspective," International Review of Financial Analysis, Elsevier, vol. 72(C).
    3. Wei, Yu & Zhang, Yaojie & Wang, Yudong, 2022. "Information connectedness of international crude oil futures: Evidence from SC, WTI, and Brent," International Review of Financial Analysis, Elsevier, vol. 81(C).
    4. Haiying Wang & Ying Yuan & Tianyang Wang, 2021. "The dynamics of cross‐boundary fire—Financial contagion between the oil and stock markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(10), pages 1655-1673, October.
    5. Cui, Jinxin & Maghyereh, Aktham, 2023. "Time-frequency dependence and connectedness among global oil markets: Fresh evidence from higher-order moment perspective," Journal of Commodity Markets, Elsevier, vol. 30(C).
    6. Li, Xiafei & Liao, Yin & Lu, Xinjie & Ma, Feng, 2022. "An oil futures volatility forecast perspective on the selection of high-frequency jump tests," Energy Economics, Elsevier, vol. 116(C).
    7. Jiang, Zhe & Zhang, Lin & Zhang, Lingling & Wen, Bo, 2022. "Investor sentiment and machine learning: Predicting the price of China's crude oil futures market," Energy, Elsevier, vol. 247(C).
    8. Ziliang Yu & Jian Yang & Robert I. Webb, 2023. "Price discovery in China's crude oil futures markets: An emerging Asian benchmark?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(3), pages 297-324, March.
    9. Jiasha Fu & Hui Qiao, 2022. "The Time-Varying Connectedness Between China’s Crude Oil Futures and International Oil Markets: A Return and Volatility Spillover Analysis," Letters in Spatial and Resource Sciences, Springer, vol. 15(3), pages 341-376, December.
    10. Liu, Zhenhua & Zhang, Huiying & Ding, Zhihua & Lv, Tao & Wang, Xu & Wang, Deqing, 2022. "When are the effects of economic policy uncertainty on oil–stock correlations larger? Evidence from a regime-switching analysis," Economic Modelling, Elsevier, vol. 114(C).
    11. Zhu, Pengfei & Tang, Yong & Wei, Yu & Dai, Yimin & Lu, Tuantuan, 2021. "Relationships and portfolios between oil and Chinese stock sectors: A study based on wavelet denoising-higher moments perspective," Energy, Elsevier, vol. 217(C).
    12. Yongmin Zhang & Shusheng Ding & Haili Shi, 2022. "The impact of COVID‐19 on the interdependence between US and Chinese oil futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(11), pages 2041-2052, November.
    13. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2022. "The growth of oil futures in China: Evidence of market maturity through global crises," Energy Economics, Elsevier, vol. 114(C).
    14. Hong Li & Yanlin Shi, 2022. "Robust information share measures with an application on the international crude oil markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(4), pages 555-579, April.
    15. Li, Jingyu & Liu, Ranran & Yao, Yanzhen & Xie, Qiwei, 2022. "Time-frequency volatility spillovers across the international crude oil market and Chinese major energy futures markets: Evidence from COVID-19," Resources Policy, Elsevier, vol. 77(C).
    16. Huang, Yisu & Xu, Weiju & Huang, Dengshi & Zhao, Chenchen, 2023. "Chinese crude oil futures volatility and sustainability: An uncertainty indices perspective," Resources Policy, Elsevier, vol. 80(C).
    17. Lu, Xinjie & Ma, Feng & Xu, Jin & Zhang, Zehui, 2022. "Oil futures volatility predictability: New evidence based on machine learning models11All the authors contribute to the paper equally," International Review of Financial Analysis, Elsevier, vol. 83(C).
    18. Gong, Xu & Guan, Keqin & Chen, Liqing & Liu, Tangyong & Fu, Chengbo, 2021. "What drives oil prices? — A Markov switching VAR approach," Resources Policy, Elsevier, vol. 74(C).
    19. Lin, Boqiang & Su, Tong, 2021. "Do China's macro-financial factors determine the Shanghai crude oil futures market?," International Review of Financial Analysis, Elsevier, vol. 78(C).
    20. Nan, Yu & Sun, Renjin & Zhen, Zhao & Fangjing, Chu, 2022. "Measurement of international crude oil price cyclical fluctuations and correlation with the world economic cyclical changes," Energy, Elsevier, vol. 260(C).
    21. Zhang, Qi & Di, Peng & Farnoosh, Arash, 2021. "Study on the impacts of Shanghai crude oil futures on global oil market and oil industry based on VECM and DAG models," Energy, Elsevier, vol. 223(C).
    22. Jiqian Wang & Feng Ma & M.I.M. Wahab & Dengshi Huang, 2021. "Forecasting China's Crude Oil Futures Volatility: The Role of the Jump, Jumps Intensity, and Leverage Effect," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(5), pages 921-941, August.
    23. Cui, Jinxin & Maghyereh, Aktham, 2023. "Higher-order moment risk connectedness and optimal investment strategies between international oil and commodity futures markets: Insights from the COVID-19 pandemic and Russia-Ukraine conflict," International Review of Financial Analysis, Elsevier, vol. 86(C).
    24. Chang, Lei & Mohsin, Muhammad & Gao, Zhennan & Taghizadeh-Hesary, Farhad, 2023. "Asymmetric impact of oil price on current account balance: Evidence from oil importing countries," Energy Economics, Elsevier, vol. 123(C).
    25. Shao Ying-Hui & Liu Ying-Lin & Yang Yan-Hong, 2022. "The short-term effect of COVID-19 pandemic on China's crude oil futures market: A study based on multifractal analysis," Papers 2204.05199, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baruník, Jozef & Kočenda, Evžen & Vácha, Lukáš, 2016. "Asymmetric connectedness on the U.S. stock market: Bad and good volatility spillovers," Journal of Financial Markets, Elsevier, vol. 27(C), pages 55-78.
    2. Dean, Warren G. & Faff, Robert W. & Loudon, Geoffrey F., 2010. "Asymmetry in return and volatility spillover between equity and bond markets in Australia," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 272-289, June.
    3. Helena Chuliá & Hipòlit Torró, 2008. "The economic value of volatility transmission between the stock and bond markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(11), pages 1066-1094, November.
    4. Hou, Yang & Li, Steven, 2014. "The impact of the CSI 300 stock index futures: Positive feedback trading and autocorrelation of stock returns," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 319-337.
    5. Chen, Jing & Dong, Yizhe & Hou, Wenxuan & McMillan, David G., 2018. "Does feedback trading drive returns of cross-listed shares?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 179-199.
    6. Nikolaos A. Kyriazis, 2021. "A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets," JRFM, MDPI, vol. 14(7), pages 1-46, June.
    7. Charlotte Christiansen, 2010. "Decomposing European bond and equity volatility," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(2), pages 105-122.
    8. Bohl, Martin T. & Gross, Christian & Souza, Waldemar, 2019. "The role of emerging economies in the global price formation process of commodities: Evidence from Brazilian and U.S. coffee markets," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 203-215.
    9. Luc Bauwens & Christian M. Hafner & Diane Pierret, 2013. "Multivariate Volatility Modeling Of Electricity Futures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(5), pages 743-761, August.
    10. Yaya, OlaOluwa S. & Tumala, Mohammed M. & Udomboso, Christopher G., 2016. "Volatility persistence and returns spillovers between oil and gold prices: Analysis before and after the global financial crisis," Resources Policy, Elsevier, vol. 49(C), pages 273-281.
    11. Pierre L. Siklos & Martin Stefan & Claudia Wellenreuther, 2020. "Metal prices made in China? A network analysis of industrial metal futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1354-1374, September.
    12. Burns, Christopher B. & Kane, Stephen, 2022. "Arbitrage breakdown in WTI crude oil futures: An analysis of the events on April 20, 2020," Resources Policy, Elsevier, vol. 76(C).
    13. Caporin, Massimiliano, 2013. "Equity and CDS sector indices: Dynamic models and risk hedging," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 261-275.
    14. Jian Yang & Zheng Li & Tao Wang, 2021. "Price discovery in chinese agricultural futures markets: A comprehensive look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(4), pages 536-555, April.
    15. Malik, Farooq & Ewing, Bradley T., 2009. "Volatility transmission between oil prices and equity sector returns," International Review of Financial Analysis, Elsevier, vol. 18(3), pages 95-100, June.
    16. Sun, Qian & Tong, Wilson H.S. & Yan, Yuxing, 2009. "Market liberalization within a country," Journal of Empirical Finance, Elsevier, vol. 16(1), pages 18-41, January.
    17. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1127-1220, Elsevier.
    18. Chris Motengwe & Angel Pardo, 2016. "Major International Information Flows Across the Safex Wheat Market," South African Journal of Economics, Economic Society of South Africa, vol. 84(4), pages 636-653, December.
    19. Brenner, Menachem & Pasquariello, Paolo & Subrahmanyam, Marti, 2009. "On the Volatility and Comovement of U.S. Financial Markets around Macroeconomic News Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(6), pages 1265-1289, December.
    20. Yang Hou & Steven Li, 2013. "Price Discovery in Chinese Stock Index Futures Market: New Evidence Based on Intraday Data," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(1), pages 49-70, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:40:y:2020:i:6:p:860-884. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.