The dynamic correlation between oil price shocks and Chinese stock market---Decomposition of oil price shock based on SVAR model
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This paper extends the literature on the relationship between oil price shocks and Chinese stock market from both the aggregate and industrial level by decomposing oil price shocks into four sources based on the four-variable SVAR model. Empirical results show that the positive impulse of future speculative shock only stimulates the sharp rise of oil price in the short term, with a reversal in the later period. On the aggregate level, Shanghai composite index has positive connections with the oil price volatility driven by the oil aggregate demand shock and speculative shock, which are accompanied by obvious time-varying characteristics. Meanwhile, on the industrial level, the fluctuation of oil price driven by the oil supply shock can only have a stable impact on the energy industry index, while that driven by the oil aggregate demand shock will have a positive influence on a wider range of industries. Specially, the oil price driven by the speculative shock has the same rise and fall with the financial industry index.
Oil price shocks decomposition, SVAR model, Chinese stock market, dynamic correlation