Asymmetric volatility spillovers between crude oil and China's financial markets

Highlights: • We combine the DCC-MIDAS model with asymmetry effects with the DY spillover index model. • China's financial markets are dominated by bad volatility spillovers during financial disasters. • The long-term volatility spillovers are great than the short-term volatility spillovers. • Gold under the short-term condition may hedge the risks. In this paper, we combine the DCC-MIDAS model with asymmetry effects with the DY spillover index model and study the asymmetric volatility spillover relationship between the international crude oil market and three major financial markets of China. Based on the high-frequency daily data from 2003 to 2019, we divide the volatility caused by positive return and negative return into good volatility and bad volatility, we use our methods to characterize volatility spillovers across crude oil market, stock market, bond market and gold market from the perspectives of long-term and short-term volatilities, as well as good and bad volatilities. The results show that there are asymmetric volatility spillover effects between the crude oil market and different financial markets in China. The long-term volatility spillover effects are significantly higher than the short-term volatility spillover effects of crude oil market, and the good volatility spillovers effects are greater than the bad volatility spillovers effects. China's financial markets are dominated by the bad volatility spillovers during financial disasters affected by the crude oil market, at the same time, the bad total volatility spillovers rise sharply and are periodically higher than the good volatility spillovers. In addition, gold under short-term conditions can effectively hedge the risks.