The impact of COVID-19 on the interdependence between US and Chinese oil futures markets

The oil futures market plays a vital role in the global financial system, especially after the negative future oil price rose during the COVID-19 pandemic. This paper investigates the COVID-19 impact on the interdependence between the US and Chinese oil futures markets by extending the dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) models with incorporating COVID-19 variables and by applying vector autoregression (VAR) models. Our study reveals that the COVID-19 pandemic enhanced the long-run correlation between the two oil markets. In contrast, daily changes in pandemic severity had a negative effect on the short-term transient correlation. Our results show that COVID-19 changed the one-direction causality from the US oil market to the Chinese market in the pre-COVID period to a bidirectional causal relation between the two markets during the COVID period. It strengthened the volatility spillover effect from the Chinese to US markets. These findings are helpful to regulars' monitoring oil supply chain risk and investors' cross-market hedging of spillover risks from a systematic risk perspective.

Impact persistence of stock market risks in commodity markets: Evidence from China.

The risk spillover among financial markets has been noticeably investigated in a burgeoning number of literature. Given those doctrines, we scrutinize the impact persistence of volatility spillover and illiquidity spillover of Chinese commodity markets in this paper. Based on the sample from 2010 to 2020, we reveal that there is a cross-market spillover of volatility and illiquidity in China and also, interactions between volatility and illiquidity in different financial markets are pronounced. More importantly, we demonstrate that different commodity markets have different responsiveness to stock market shocks, which embeds their market characteristics. Specifically, we discover that the majority of the traders in gold market might be hedger and therefore gold market is more sensitive to stock market illiquidity shock and thus the shock impact in persistent. On the other hand, agricultural markets like corn and soybean markets might be dominated by investors and thus those markets respond to the stock market volatility shocks and the shock impact in persistent over 10 periods given the first period of risk shock happening. In fact, different Chinese commodity markets' responsiveness towards Chinese stock market risk shocks indicates the stock market risk impact persistence in Chinese commodity markets. This result can help policymakers to understand the policy propagation effect according to this risk spillover channel and risk impact persistence mechanism in China.