Risk Dependence and Risk Spillovers Effect from Crude Oil on the Chinese Stock Market and Gold Market: Implications on Portfolio Management

We analyze crude oil's dependence and the risk spillover effect on the Chinese stock market and the gold market. We compare both static and dynamic copula functions and calculate the average upward and downward spillover effect using the time-varying Copula model and the conditional value-at-risk approach. By utilizing daily data on crude oil prices, China's stock market, and the gold market, we observe an asymmetric spillover effect: the downside spillover effects from crude oil prices on the Chinese stock market and gold market are larger than the upside spillover effect. We then identify changes in the structure of the sample periods and calculate the dynamic conditional correlation between them. In addition, we explore the optimal weight and hedge ratios in diversified portfolios to mitigate potential risks. Our results suggest that investors and portfolio managers should frequently adjust their portfolio strategies, particularly during extreme events like COVID-19, when financial assets become more volatile. Furthermore, crude oil can help reduce the risk in the Chinese stock market and gold market to some extent during different sub-periods. © 2023 by the authors.

Dependences and risk spillover effects between Bitcoin, crude oil and other traditional financial markets during the COVID-19 outbreak.

This study examines the relationship and risk spillover between Bitcoin, crude oil, and six traditional markets (the US stock, Chinese stock, gold, bond, currency, and real estate markets) from 2019 to 2020, during which the coronavirus disease 2019 (COVID-19) outbreak occurred as well. We first discuss the static relationship between Bitcoin and these markets using a quantile-on-quantile model and examine the dynamic relationship using a time-varying copula model. A conditional value-at-risk model is subsequently used to estimate the risk spillover between the markets studied. The empirical results reveal that the relationship between these markets is always time-varying, and the COVID-19 outbreak has revealed such changes in the relationship between Bitcoin and other traditional financial markets. The risk of all single markets has enhanced because of the pandemic. Further, the risk spillover of these markets has also changed dramatically since the COVID-19 outbreak during which the Bitcoin market has played an important role and exerted a significant impact on the crude oil market, and the four other markets (US stock, gold, Chinese stock, and real estate markets). Overall, our findings indicate that investors and policymakers need to be made aware of the risk spillover between Bitcoin, crude oil, and other traditional markets and that flexible hedge strategies and policies should be implemented in response to the challenges and economic recession observed following the COVID-19 outbreak.