Title: Mean spillover effect between crude oil and gasoline markets: an empirical result

Authors: Zhi-Hong Han; Sheng Yang; Mu-Ling Chen; Ling-Yun He

Addresses: International College Beijing, China Agricultural University, Beijing 100083, China ' College of Economics and Management, China Agricultural University, Beijing 100083, China ' College of Economics and Management, China Agricultural University, Beijing 100083, China ' College of Economics and Management, China Agricultural University, Beijing 100083, China

Abstract: In this paper, we investigate the mean spillover effect between crude oil and gasoline prices in both spot and future markets before and after the 2008 financial crisis. To do this, we first conduct co-integration and Granger causality tests to examine the long-term equilibrium and causality between crude oil and gasoline prices in both spot and future markets. Then we apply VEC model, impulse response, and variance decomposition to analyse the short-term adjustment and the interactive influence between the markets. Using a Markov regime-switching model, we find both crude oil and gasoline markets fluctuate more intensely after the financial crisis, and thereby verify that the financial crisis has influence on the markets. Specifically, the mean spillover effect becomes more intense after the crisis. Before the crisis, there is no causality between the two markets, while after that, causality appears in the markets.

Keywords: crude oil market; gasoline market; mean spillover effect; financial crisis; Markov model; oil prices; petrol prices; gasoline prices; spot markets; futures; VEC model; impulse response; variance decomposition; regime switching model; market interaction; modelling.

DOI: 10.1504/IJGEI.2015.069478

International Journal of Global Energy Issues, 2015 Vol.38 No.1/2/3, pp.49 - 68

Received: 26 Aug 2014
Accepted: 27 Sep 2014
Published online: 18 May 2015 *

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