The Relationship Between Crude Oil Futures and Exchange Rates in the Context of the COVID-19 Shock: A Tale of Two Markets

Journal of Risk, 25(4), 1-38, 2023

45 Pages Posted: 16 Aug 2022 Last revised: 10 Apr 2023

See all articles by Ziliang Yu

Ziliang Yu

School of Finance, Nankai University

Yanan Liu

NanKai University

Huiting Mang

NanKai University

Xiaomeng Liu

Nankai University

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Abstract

We examine the high-frequency intraday return and volatility transmission between crude oil futures prices and exchange rates around the COVID-19 shock for both the newly established Renminbi-denominated INE in China and the dollar-denominated Brent in the UK. With controlling for the influence from the stock markets, we find significant disparities in return linkages but quite similar volatility transmission patterns. The INE shows no return linkages with the exchange rates except before the shock, while the Brent consistently shows return spillovers from crude oil futures prices to exchange rates. The volatility spillovers are unidirectional—from exchange rates to crude oil futures prices—before the shock and change into bidirectional under the shock for both INE and Brent. Nevertheless, both return and volatility spillover patterns in China resemble that in the UK when using offshore instead of onshore exchange rates. These findings carry important practical implications.

Keywords: Crude oil futures; Exchange rates; Cointegration; Conditional correlation; China

JEL Classification: E44, F31, G12, G15

Suggested Citation

Yu, Ziliang and Liu, Yanan and Mang, Huiting and Liu, Xiaomeng, The Relationship Between Crude Oil Futures and Exchange Rates in the Context of the COVID-19 Shock: A Tale of Two Markets. Journal of Risk, 25(4), 1-38, 2023, Available at SSRN: https://ssrn.com/abstract=4190820 or http://dx.doi.org/10.2139/ssrn.4190820

Ziliang Yu (Contact Author)

School of Finance, Nankai University ( email )

38# Tongyan Road
Haihe Education Park
Tianjin, 300350
China

HOME PAGE: http://my.nankai.edu.cn/jrxy/yzl_en/list.htm

Yanan Liu

NanKai University

Huiting Mang

NanKai University

Xiaomeng Liu

Nankai University ( email )

94 Weijin Road
Tianjin, 300071
China

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