Oil price uncertainty and sectoral stock returns in China: A time-varying approach

•We estimate the time-varying impact of oil price uncertainty on sectoral stock returns.•We use a bivariate VAR-GARCH-in-mean model using weekly data from China.•Oil price volatility affects stock returns during periods with demand-side shocks.

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-February 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.