Dynamic Spillovers Between International Crude Oil Market and China's Commodity Sectors: Evidence From Time-Frequency Perspective of Stochastic Volatility

• Published in: Frontiers in energy research Vol. 8
• Main Authors: Li, Zhenghui, Su, Yaya
• Format: Journal Article
• Language: English
• Published: Frontiers Media S.A 21.04.2020
• Subjects: bulk commodity markets; crude oil prices; frequency decomposition; stochastic volatility; volatility spillover effects
• ISSN: 2296-598X; 2296-598X
• DOI: 10.3389/fenrg.2020.00045

We study the time-frequency dynamics of stochastic volatility spillovers between international crude oil markets and China's commodity sectors in the spectral representation framework of generalized forecast error variance decomposition (GFEVD). We find evidence that international crude oil markets has significant volatility spillover effects on China's bulk commodity markets, and the volatility spillovers are sensitive to extreme geopolitical or financial events. The net spillovers of international oil markets are almost positive and driven mainly by short-term components (within a week). However, uncertain financial factors from China such as the market-oriented reform in 2013 and the stock disaster in 2015 adversely affect the net oil-commodity volatility spillovers through the medium-term components (week to a month) and long-term components (month to a year). Moreover, the volatility spillover effects of crude oil prices on different commodity sectors in China are heterogeneous. Metal, coal coke, and steel ore and energy commodity sectors are more affected by crude oil prices, whereas nonmetal building materials and agricultural commodities are less affected. These outcomes implement necessary implications for investors and policymakers.