The effects of unexpected crude oil price shocks on Chinese stock markets

This paper assesses the impact of unexpected oil price shocks on Chinese stock markets. We estimated the extent of unexpected oil price shocks to capture the uncertainty characteristics of oil price volatility. We use autoregressive distributed lag model to investigate the cointegration between unexpected oil price shocks and China stock markets. Moreover, we decompose oil price shocks into positive and negative shocks and apply nonlinear autoregressive distributed lag model to investigate whether the oil price shock has a symmetric or asymmetric effect on Chinese stock markets. The empirical results suggest that unexpected oil price shocks have different impacts on the Shanghai and Shenzhen stock markets. The unexpected positive oil prices shock in the previous period has a significant impact on Shenzhen stock market, but has insignificant impact on Shanghai stock market.