Dynamic linkage and risk transmission mechanisms between crude oil and China – U.S. stock markets: a multi-scale perspective

Investigating the dynamic linkage between international crude oil prices and stock markets is crucial for mitigating cross-market systemic risks. Based on weekly data from 11 January 2002, to 13 October 2023, this paper develops an integrated analytical framework combining wavelet decomposition, DCC-GARCH, and quantile time-frequency spillover methods to systematically examine the oil – stock nexus. The main findings are as follows: First, the correlation between oil prices and stock returns exhibits significant frequency dependence. In the short term, the correlation is positive, whereas it turns negative in the long term. Second, the relationship between oil price changes and stock markets varies with the underlying drivers of oil price shocks. Demand-driven oil price increases are primarily associated with positive correlations, whereas supply-driven increases are more often associated with negative correlations. Third, VIX is positively associated with market co-movement, while GPR shows the opposite effect. Fourth, the correlation between oil prices and U.S. stocks is stronger than that between oil prices and Chinese stocks, possibly reflecting China’s policy interventions and differences in market structure. Moreover, the U.S. stock market is the primary source of global risk spillovers, while the Chinese stock market is primarily a net receiver of risk.