The heterogeneity dependence between crude oil price changes and industry stock market returns in China: Evidence from a quantile regression approach

This paper explores the dependence between real crude oil price changes and Chinese real industry stock market returns based on the monthly data from 1994/03 to 2014/06. We address this issue using the quantile regression approach, enabling a more detailed investigation of structure and degree of dependence. Empirical results reveal that the reaction of market returns to crude oil is highly heterogeneous across conditional distribution of industry stock returns. Furthermore, there is evidence that this dependence is positive and exists only in recessions or bearish markets with low expected returns. The dependence at low quantiles is not limited to one market, but is a common feature across industries. Additionally, dependence also changes since the onset of structural breaks. We determine that Chinese industry stock and global crude oil markets have contagion in rare situations. Most cases do not demonstrate contagion. •This paper investigates the dependence between real crude oil price changes and Chinese real stock market returns from an industry perspective.•We use Koenker's quantile regression to measure the degree and structure of dependence.•Dependence is heterogeneous across conditional distribution of industry stock returns.•Results indicate that dependence is positive and exists only in bearish markets.•The presence of the detected structural breaks switches dependence.