The impacts of infectious disease pandemic on China’s edible vegetable oil futures markets: A long-term perspective

ABSTRACT

For the extremely important role of China in global edible vegetable oil market and its decisive measures in the epidemic controlling and stable economic recovery during the COVID-19 pandemic, the aim of this article is to inspect the quantitative impacts of infectious disease pandemic on the returns, volatilities and correlations of China's edible vegetable oil futures markets by using a DCC-MVGARCH-X model incorporating Baidu searching index as the proxy of pandemic severity. Our empirical results show that infectious disease pandemic does have significantly positive impacts on the returns and volatilities of China's soybean, canola and palm oil futures markets. Second, there are significant volatility spillover effects among the three vegetable oils, suggesting strong contagion effect from one oil market to the others. Third, soybean oil and palm oil show the largest correlation, while the dependence between canola oil and palm oil is the smallest one among the three pairwise correlations. Moreover, no matter to consider epidemic situation in China or in global environment, infectious disease pandemic has significant effects on these correlations.