Regime changes and extreme risk spillovers of INE crude oil futures

Abstract

This study identifies the regime changes and investigates the extreme risk spillovers of China’s first international crude oil futures (INECOFs). The novelty of this study is that a non-linear process is incorporated to examine the structural breaks of the INECOFs and to capture the movements of the INECOFs extreme risk. To facilitate the INECOFs traders and the global financial investors to hedge against extreme risk, the extreme risk spillovers between the INECOFs and the global financial market are investigated. We find that: (1) the two-regime GJRGARCH-SGED model can identify the regime changes of INECOFs and generate more accurate risk measures; (2) the probability of INECOFs in the tranquil regime is 86.01% and in the agitated regime is 13.99%; (3) the INECOFs plays a modest role in the extreme risk spillover network, while the global oil benchmark plays an important role; (4) the INECOFs is an upside risk receiver and a downside risk transmitter. We make the first attempt to examine the regime changes of the INECOFs volatility and the INECOFs extreme risk spillovers.