Crude Oil Price Shocks and Chinese Industrial Stock Prices: New Evidence from Fama-French Three-Factor Model
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
So far, numerous researchers (Blanchard and Gali, 2007) have offered empiricalevidence on the relationship between crude oil prices and macroeconomic variables. However, it is remarkable that only few researchers have ever conducted research on the impact of crude oil price on financial market, especially for developing nations, such as China. This thesis attempts to investigate the impact of crude oil returns on industrial stock returns and its volatilities of twelve different industries in Chinese financial market during the time span of 5th January 2010 and 31th December 2014. “Terrorist attacks” is used as an instrumental variable for the volatility of crude oil returns in order to estimate the causal effect. Based on the GARCH model, the estimation result reveals that the impact of the fluctuation of crude oil price on Chinese industrial stock market will significantly affect five out of twelve industries. The indirectly related crude oil industries (such as Retail, IT, Finance, Real Estate and Media industry) have a long persistency (more than 19 days) of volatility during the examined period. In addition, with two-step IV model, the findings imply that only the Mining industry has a strong significant causal connection to oil fluctuation. Most sectors benefit from the ascending of crude oil price except Transportation, IT, Real Estate and Media industry. Similarly, the positive volatility oil return also creates positive effect on major industries except Manufacturing, Electricity and IT industry. The research findings of this thesis are very important since there are only limited similar studies that analyze the causal effect between these variables using “terrorist attacks” as an instrument variable on Chinese financial market. The research provides useful information to economists, investors and policymakers for further study on relevant issues.
Place, publisher, year, edition, pages
2015. , 52 p.
GARCH (1.1), Instrument variable, GMM, Terrorist attacks, Fama-French model, Industry stock return, Crude oil, Causal effect.
Economics and Business
IdentifiersURN: urn:nbn:se:kth:diva-190978OAI: oai:DiVA.org:kth-190978DiVA: diva2:953975