Oil Price Uncertainty and Sectoral Stock Returns in China: A Time-Varying Approach
29 Pages Posted: 28 Jun 2014
Date Written: June 2014
This paper investigates the time-varying impact of oil price uncertainty on stock prices in China using weekly data on ten sectoral indices over the period January 1997-February 2014. The estimation of a bivariate VAR-GARCH-in-mean model suggests that oil price volatility affects stock returns positively during periods characterized by demand-side shocks in all cases except the Consumer Services, Financials, and Oil and Gas sectors. The latter two sectors are found to exhibit a negative response to oil price uncertainty during periods with supply-side shocks instead. By contrast, the impact of oil price uncertainty appears to be insignificant during periods with precautionary demand shocks.
Keywords: China, Oil price uncertainty, Sectoral stock returns
JEL Classification: C32, Q43
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