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Caporale, Guglielmo Maria, Menla Ali, Faek and Spagnolo, Nicola (2014) Oil price uncertainty and sectoral stock returns in China : a time-varying approach. Centre for International Capital Markets discussion papers, 2014 (07). pp. 1-27. ISSN 1749-3412
This paper investigates the time-varying impact of oil price uncertainty on stock prices in China using weekly data on ten sectoral indices over the period January 1997-Febraury 2014. The estimation of a bivariate VAR-GARCH-in-mean model suggests that oil price volatility affects stock returns positively during periods characterised by demand-side shocks in all cases except the Consumer Services, Financials, and Oil and Gas sectors. The latter two sectors are found to exhibit a negative response to oil price uncertainty during periods with supply-side shocks instead. By contrast, the impact of oil price uncertainty appears to be insignificant during periods with precautionary demand shocks.
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