Author(s)

Shuhui Cao ¹, Zhu Sun ¹

Affiliation(s)

¹ School of Economics and Management, China University of Petroleum, Beijing, China

Corresponding Author

Zhu Sun

ABSTRACT

In portfolio construction and risk management, the extreme risk spillover effect between markets should be fully considered. In this paper, the AR-GARCH-Copula with skewed t-distribution is used to characterize the dependence between China's crude oil futures market and the stock market, and then the CoVaR method is used to measure the size and intensity of upside and downside extreme risk spillovers between China's crude oil futures market and China's stock market, and to analyze the asymmetry in the extreme risk spillovers effect. The results of the study show that: (1) there is an obvious positive correlation tail dependence between China's crude oil futures market and the stock market; (2) there is indeed a bidirectional asymmetric extreme risk spillover effect between China's crude oil futures market and the stock market, which is manifested in the asymmetry of market-to-market extreme risk spillover as well as asymmetry of upside and downside risk; and (3) there is obvious variability between the extreme risk of China's crude oil futures market and Shanghai and Shenzhen stock markets in terms of extreme risk spillover intensity in China's crude oil futures market and the Shanghai and Shenzhen stock markets are significantly different, with the former having a greater risk spillover intensity than the latter.

KEYWORDS

Shanghai crude oil futures marke, Stock market, Extreme risk spillovers, asymmetry, Upside and downside risk, Copula-CoVaR

CITE THIS PAPER

Shuhui Cao, Zhu Sun, Extreme risk spillovers between Chinese crude oil and stock markets: A CoVaR-Copula approach. Financial Engineering and Risk Management (2025) Vol. 8: 55-66. DOI: http://dx.doi.org/10.23977/ferm.2025.080107.

REFERENCES

[1] Yang, Z., Chen, Y., & Lin, S. (2022). A literature review of systemic risk: Status, development, and prospect. Journal of Financial Research, 499(1), 185-217.
[2] Nadal, R., Szklo, A., & Lucena, A. (2017). Time-varying impacts of demand and supply oil shocks on correlations between crude oil prices and stock market indices. Research in International Business and Finance, 42, 1011-1020.
[3] Chen, X., & Huang, Y. (2017). The co-movement between the international crude oil market and stock market: Evidence from quantile regression. The Theory and Practice of Finance and Economics, 38(05), 53-58.
[4] Antonakakis, N., & Filis, G. (2013). Oil prices and stock market correlation: A time-varying approach. International Journal of Energy and Statistics, 1(01), 17-29.  
[5] Raza, N., Shahzad, S. J. H., Tiwari, A. K., et al. (2016). Asymmetric impact of gold, oil prices, and their volatilities on stock prices of emerging markets. Resources Policy, 49, 290-301.
[6] Ji, Q., Liu, B. Y., Zhao, W. L., et al. (2020). Modelling dynamic dependence and risk spillover between all oil price shocks and stock market returns in the BRICS. International Review of Financial Analysis, 68, 101238.
[7] Caporale, G. M., Ali, F. M., & Spagnolo, N. (2015). Oil price uncertainty and sectoral stock returns in China: A time-varying approach. China Economic Review, 34, 311-321.
[8] Al-Maadid, A., Spagnolo, F., & Spagnolo, N. (2016). Stock prices and crude oil shocks: The case of GCC countries. In Handbook of Frontier Markets (pp. 33-47). Academic Press.
[9] Huang, S., An, H., Gao, X., & Wen, S. (2018). Multiscale impacts of oil price fluctuations driven by demand and supply on the stock market. Chinese Journal of Management Science, 26(11), 62-73.
[10] Chen, S., & Hao, Y. (2021). Correlation analysis of China's crude oil futures prices and stock price indexes. Securities & Futures of China, 36-55.
[11] Wang, C., & Han, F. (2021). A study of risk spillover between the international crude oil market and the stock market. Review of Investment Studies, 40(08), 28-39.
[12] Zhong, W., & Li, H. (2022). Tail risk spillover effects among crude oil price, macroeconomic variables, and China's stock market. Chinese Journal of Management Science, 30(2), 27-37.
[13] Kou, H., & Chai, J. (2022). Does the Shanghai crude oil futures market have a role in stabilizing China's stock market? Chinese Journal of Management Science, 30(11), 20-30.
[14] Reboredo, J. C., & Ugolini, A. (2016). Quantile dependence of oil price movements and stock returns. Energy Economics, 54, 33-49. 
[15] Bittlingmayer, G. (2005). Oil and stocks: Is it war risk? University of Kansas manuscript.
[16] Sim, N., & Zhou, H. (2015). Oil prices, US stock return, and the dependence between their quantiles. Journal of Banking & Finance, 55, 1-8.
[17] Park, J., & Ratti, R. A. (2008). Oil price shocks and stock markets in the US and 13 European countries. Energy Economics, 30(5), 2587-2608. 
[18] Mohanty, S. K., Nandha, M., Turkistani, A. Q., et al. (2011). Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries. Global Finance Journal, 22(1), 42-55.
[19] Gao, T., & Gao, H. (2022). Crude oil futures and China's stock market volatility: An empirical study based on nonlinear models. China Soft Science, (S1), 304-315. 
[20] Sklar, M. (1959). Fonctions de Repartition a Dimensions er Leurs Marges. Publications de l'Institut de Statistique de l'Universite de Paris, 8, 229-231. 
[21] Adrian, T., & Brunnermeier, M. (2016). CoVaR. The American Economic Review, 106(7), 1705-1741.

Sponsors, Associates, and Links

---

• Information Systems and Economics
  
  
• Accounting, Auditing and Finance
  
  
• Industrial Engineering and Innovation Management
  
  
• Tourism Management and Technology Economy
  
  
• Journal of Computational and Financial Econometrics
  
  
• Accounting and Corporate Management
  
  
• Social Security and Administration Management
  
  
• Population, Resources & Environmental Economics
  
  
• Statistics & Quantitative Economics
  
  
• Agricultural & Forestry Economics and Management
  
  
• Social Medicine and Health Management
  
  
• Land Resource Management
  
  
• Information, Library and Archival Science
  
  
• Journal of Human Resource Development
  
  
• Manufacturing and Service Operations Management
  
  
• Operational Research and Cybernetics