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TIME-FREQUENCY DOMAIN SPILLOVER EFFECT OF OIL PRICE VOLATILITY ON CHINA'S COMMODITY FUTURES MARKET⁴
Jingran Zhu, Qinghua Song, Samer Khouri

ABSTRACT. With growing uncertainty in oil prices and increasing turnovers of China's commodity futures year by year, the spillover effects between the commodity futures market and crude oil market have attracted increasing attention from the public. A strong correlation exists between the price of China's commodity futures and oil in the international market. To explore the effects and spillover differences of oil price volatilities on China's commodity futures market in various fluctuation periods, an "International oil price-China's commodity futures" information system was constructed. Based on data from 1 June 2004 to 28 February 2020, the dynamic and static spillover effects of oil price fluctuations on China's commodity futures market were measured and analysed by combining the time-frequency spillover index models. Results demonstrate that with respect to the static spillover index, the total spillover in a time-domain system is 31.99% and that in different frequency domains weakens gradually. Oil price is tending to the net transmitter. With respect to the dynamic spillover effect, the spillover effect presents dynamic changes in various frequency domains. Risk events aggravate the volatility in the short run but they affect the fluctuation trend in the long run. On this basis, this study believes that the ability to cope with oil price shocks can be strengthened by optimising business categories and enhancing risk management .

KEYWORDS:  oil price, commodity futures, spillover effect, spillover index model.

JEL classification:  F36, G23, Q43.

⁴Acknowledgments:  This study is supported by the National Natural Science Foundation of China (71801226).