The Effect of Global Oil Price Shocks on China’s Chemical Markets

Abstract

This paper investigates the effects of global oil price shocks on China’s chemical market and two typical markets: fuel oil and PTA. The ARJI-GARCH model is applied to extract the jump intensity of crude oil returns. Then, jump intensity and positive and negative oil price shocks are added to the ARMA-GARCH model to examine the spillover effects of the crude oil market on chemical markets. Our results indicate that global oil returns are characterized by time-varying jump behavior. In addition, the impacts of oil returns jumps on the chemical markets are different. The oil returns jumps only have significant effects on the whole market and the fuel oil market. Moreover, the oil price shocks have asymmetric effects on chemical markets, except for the fuel oil market. Specifically, negative oil price shocks have greater effects on these markets than do positive shocks.