National Natural Science Foundation of ChinaNational Natural Science Foundation of China (NSFC) [71771082, 71371067, 71431008, 71801091]; Hunan Provincial Natural Science Foundation of ChinaNatural Science Foundation of Hunan Province [2017JJ1012]
This paper investigates the risk transmission and hedging strategies between natural gas market and stock markets. We propose a multivariate GARCH framework which combines regime switching with multivariate long memory and asymmetry GARCH. Results show that there exists granger causality from natural gas market to the Chinese stock markets in crisis regime. Dynamic correlations between these markets are vulnerable to extreme weather, government policies and financial crisis. When looking at the optimal design of a natural gas-stock portfolio, we find that investors in stock markets should have more stocks than natural gas asset in order to reduce their portfolio risk.