The roles of political risk and crude oil in stock market based on quantile cointegration approach: A comparative study in China and US

摘要

This paper explores the quantile-specific short-and long-term impacts of political risk and crude oil on stock price, and tests whether the effects are different for China and the US. The recently developed method of the QARDL by Cho et al. (2015) is used to address this issue by considering any nonlinear, asymmetric and endogenous characteristics. Empirical results show that the impacts of political risk and oil price are heterogeneous across distinct stock market circumstances and economic development levels. Before 2008 crisis, Chinese stock performance is mainly positively affected by itself, whereas crude oil shock plays a vital role in the US stock in the short term; in the long term, the effects of crude oil and political risk on the Chinese stock market are significant at few quantile, while crude oil shock has an optimistic influence on the US stock when the market is bullish or bearish. After the crisis, the influence of political risk becomes more remarkable, especially for China. An interesting phenomenon is that the past performance of US stock negatively affects the current stock at medium and high quantiles. Besides, the impact mechanisms of political risk on these two stocks appear quite different characteristics. Almost all individual components can not do much on the US market. However, the effects of individual components on Chinese stock differ according to the market environments. In the pre-crisis period, the impacts of all components except government actions and investment profile abide by the classic risk-return relationship. Whereas, exactly the opposite happens after the crisis. A decrease in most of political risk components is associated with higher stock price, supporting the political risk paradox. These empirical evidences provide further insight into how political risk and crude oil shocks transmit to stock market.(c) 2021 Elsevier B.V. All rights reserved.