Exploring the spillover effect across crude oil market and international financial markets — Empirical evidence from GARCH-MIDAS analysis
U.S-China trade war
|上傳時間:||2021-09-02 17:44:52 (UTC+8)|
Crude oil is the raw material for petrochemical industry. The fluctuation of oil price is concerned by governments and investors. It reflects on global economic activities. So far, the world has encountered the US-China trade war and the COVID-19 pandemic one after another. Due to oil price volatile greatly during the COVID-19 pandemic, it deepens the purpose of exploring oil price volatility in this study. This paper applied the GARCH-MIDAS model to explore the spillover effect across crude oil market and international financial markets from January 4, 2016 to February 26, 2021. The full sample covered two economic events of the U.S-China trade war and the COVID-19 pandemic. The international financial markets consist of freight market, agricultural product market, foreign exchange market, refined oil market, biofuel market and plastic market in this research. The results reveal that freight market, foreign exchange market, refined oil market, biofuel market and plastic market are significant during the U.S-China trade war and COVID-19 pandemic. It indicates that the realized volatility of these market’s variables can predict WTI futures volatility in the long term when economic events occurred. Agricultural product market had significant influence on oil market during the COVID-19 pandemic in the last 12 months. It shows that global pandemic caused food shocks and transmitted volatility to crude oil market. Plastic market significantly transmitted volatility to crude oil market in all samples, indicating that the shock of the midstream and downstream of the petrochemical industry had an impact on crude oil market. Recently, many financial derivatives about petrochemical industry have been launched in China. The relationship between plastic commodity futures and crude oil market is less discussed in previous literatures. Finally, this study further provides the research gap to explore the middle and lower reaches of the petrochemical industry chain about oil-related research.
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