Oil shocks and their impact on energy related stocks in China

This paper contributes to the current literature by adopting time varying conditional correlation and asset pricing models to discover how the dynamics of international oil prices affect energy related stock returns in China. After conditioning for structural instability, the results show a much stronger relation following the 2008 financial crisis. We argue that this reflects the fact that investors in the Chinese stock market, especially for energy related stocks, are more sensitive to the shocks in international crude oil market.

► We model the impact of oil prices on market returns using a Capital Asset Pricing Model. ► We control for GARCH residuals and structural instability revealed using a time varying conditional correlation model. ► The financial crises increased the impact of international oil prices on the value of energy related stocks in China. ► We further look at sub-index finding that new energy stocks are less exposed to oil shocks.