Investigating Volatility Spillover of Energy Commodities in the Context of the Chinese and European Stock Markets

This paper adopts a novel approach of employing Granger causality test, dynamic conditional correlation (DCC), Diebold-Yilmaz (2012) and Barunik-Krehlic (2018) models to investigate the spillover of energy commodities in the Shanghai stock exchange and the Euronext for the December 16, 2010 - January 15, 2021. Results indicate that returns on carbon emission (RCE) and crude oil (RCO) Granger cause returns on Shanghai stock exchange (RSSE) and Euronext (REN) respectively. DCC results reveal higher dynamic linkages in longer run than in the shorter run and the Diebold-Yilmaz (2012) results indicate contribution of RCO to high gross directional volatility compared to other constituent variables. The use of Diebold-Yilmaz (2012) is unique as any authentic literature could not be found that has explored the ‘dynamic’ linkages in identifying the nexus of oil price movements with stock indices in the contexts of Europe and China, simultaneously