Oil Price Movements, Crisis Regimes, and Sectoral Heterogeneity in Chinese Stock Returns: Evidence from the Shanghai Stock Exchange

Abstract

This study investigates whether Chinese sectoral stock returns respond heterogeneously to international oil price movements and whether such responses vary across crisis regimes. Using daily data from January 2015 to June 2026, we analyze ten major sectoral indices of the Shanghai Stock Exchange, Dubai crude oil returns, oil price volatility, and the US dollar–Chinese yuan exchange rate. Dubai crude oil is used as the benchmark because it reflects Asia-oriented crude oil pricing and China’s imported energy cost conditions. The empirical analysis proceeds in several steps. First, baseline regressions are estimated to examine the average effect of oil returns on sectoral stock returns while controlling for domestic market-wide movements and exchange rate changes. Second, market-adjusted sectoral returns are used to isolate genuine sector-specific oil transmission from common market shocks. Third, GARCH(1,1)-based oil volatility and crisis-period interaction terms are introduced to identify the uncertainty effect of oil price movements during the COVID-19 pandemic, the post-pandemic period, and the US–Iran/Middle East geopolitical conflict period. Finally, DCC-GARCH dynamic conditional correlations are used as a robustness check. The results show that Chinese sectoral stock returns do not respond uniformly to oil price movements. The timing-adjusted results provide little evidence that lagged Dubai oil returns systematically predict next-day sectoral returns. Nevertheless, oil-price uncertainty exhibits selective and regime-dependent effects, particularly for Energy, Materials, Consumer Staples, Consumer Discretionary, Industrials, and Utilities.