Oil Shocks, Policy Uncertainty and Stock Returns in China

20 Pages Posted: 3 Sep 2015

See all articles by Wensheng Kang

Wensheng Kang

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Date Written: October 2015

Abstract

This paper examines the interdependence of China's policy uncertainty, the global oil market and stock market returns in China. A structural VAR model is estimated that shows that a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market‐specific demand significantly raise China's economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index, the interdependence between these variables has been rising since 2003 as China's influence in the oil market has increased. An equivalent spillover index calculated for the US is smaller and has been largely flat over time.

Keywords: China's policy uncertainty, China's stock market return, oil shocks, structural VAR

Suggested Citation

Kang, Wensheng and Ratti, Ronald A., Oil Shocks, Policy Uncertainty and Stock Returns in China (October 2015). Economics of Transition, Vol. 23, Issue 4, pp. 657-676, 2015, Available at SSRN: https://ssrn.com/abstract=2655207 or http://dx.doi.org/10.1111/ecot.12062

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

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