The Spillover Effects of WTI Crude Oil and The Stock Markets of China and The United States

Abstract

Fluctuations in crude oil prices can affect China's national economy through the transmission of market information. Based on this background, this paper selects the relevant index data of WTI crude oil and the stock markets of China and the United States from January 5, 1993 to April 30, 2024 as the research objects, and constructs the VAR-BEKK-GARCH model, the DY spill-over index, and the VAR for Var model to study the volatility spillover and extreme risk spillover between crude oil and the stock markets. The results show that the volatility spillover between WTI crude oil and the stock markets of China and the United States indicates that there is no volatility spillover effect between WTI and the Chinese stock market; when the Chinese stock market rises or falls sharply, it has tail risk spillover effects on the crude oil market, and the risk spillover effect between the crude oil market and the US stock market is asymmetric, with risk spillover typically occurring in the upper quantile rather than the lower quantile. Then, the full sample is divided into two sub-samples based on the 2008 financial crisis as the boundary for research. It is found that the risk spillover effect between WTI crude oil and the stock markets of China and the United States after the crisis is stronger than that before the crisis, which is helpful for investors and relevant practitioners to understand the relationship between the two markets, avoid risks, and promote the healthy and stable development of China's financial market.