The risk connectedness between international crude oil market and Chinese asset markets: From the perspective of common and idiosyncratic information

This paper explores the risk connectedness between the WTI crude oil market and China's brown/green assets from the perspective of common and idiosyncratic information. We employ the Generalized Dynamic Factor Model (GDFM) to decompose market returns into common-factor-driven and idiosyncratic-factor-driven components, then use GARCH family models to estimate Value at Risk (VaR) for these components. Pattern Causality (PC) is applied to test causal relationships, and the TVP-VAR-DY spillover index method measures time-varying spillover characteristics. Empirical results reveal bidirectional causality between the two markets, dominated by positive patterns. The risk linkage between crude oil and brown assets is stronger than with green assets. Both common and idiosyncratic factors drive connectedness: common factors cause linkage fluctuations, while idiosyncratic factors dominate spillover magnitude. • The volatility linkages caused by common and idiosyncratic factors have been investigated. • The multiple causal patterns of market volatility have been explored. • The international crude oil and China's asset markets have positive and negative causal links, with positive causality dominant. • Common factors govern time-varying volatility spillover characteristics, while idiosyncratic ones determine spillover magnitude.