Asymmetric impacts of oil price uncertainty on Chinese stock returns under different market conditions: Evidence from oil volatility index

Highlights: • We investigate the impacts of oil price uncertainty on Chinese stock returns. • Oil price uncertainty is measured by using newly published oil volatility index (OVX). • Results of quantile regression show that OVX mainly affects the stock returns in bearish periods. • The effects of OVX on stock returns in bearish periods are negative and asymmetric. • China's refined oil pricing reform has a weakening effect on the OVX-stock nexus. - Abstract: The crude oil volatility index (OVX) is a direct and more accurate measure of oil price uncertainty. This paper uses this kind of implied volatility index of oil prices to investigate the impacts of oil price uncertainty on the aggregate and sectoral stock returns in China. This issue is resolved by using a quantile regression, which can provide a more detailed examination under different market conditions. Meanwhile, the asymmetric effects of uncertainty shocks are also examined by using the positive and negative changes of the OVX. Furthermore, we assess whether the reform of March 27, 2013 affected the OVX-stock nexus since this reform was a major step to relax the control of domestic oil prices in China. Our results reveal that OVX changes mainly show significantly negative effects on the aggregate and sectoral stock returns in the bearish market. In particular, these effects depend largely on the positive shocks of the OVX rather than the negative shocks of the OVX. Moreover, the reform of March 27, 2013 decreased the impacts of the positive OVX shocks on Chinese stock returns.