The Influence of Crude Oil Price on Chinese Stock Market

Crude oil exerts a strong influence on national economy. Changes of international crude oil price have an important effect on Chinese economy because of China’s high dependence on the import of the crude oil. Thus, Chinese stock market can be shocked by the fluctuation of oil price. Reversely, changes in crude oil imports of China have some effect on demands and price of the crude oil. This article will take empirical analysis on the relationship between change of international crude oil price and Chinese stock price. For this purpose, this paper builds ARMA-GARCH class models to take Granger causality test. It also tests the volatility of crude price and stock price and analyzes the relationship between them. In addition, the degree of influence will be determined by impulse response function and variance decomposition. The main results of this article are as follows: Firstly, from the results of Granger causality test, we found that comparing with the returns, the volatility of crude oil price holds more obvious influence on volatility of Chinese stock price. Especially, Brent market has stronger influence on Chinese stock market than Dubai and Minas markets. Secondly, comparing by industries, China National Petroleum Corporation (CNPC) and energy industries are shocked largely by the price fluctuation of Brent, with high risk level in market, while industries such as consumption and IT face smaller strike, with low risk level in market. Key-Words: Crude oil price, Chinese stock market, Granger causality test, Impulse response function, Variance decomposition.