Abstract: This paper investigates the spillover effects between the domestic crude oil market and London crude oil market through the VAR(1)-MGARCH model. The empirical study shows: the spillover effect from domestic market to London market is more significant than the one from London market to domestic market while there exists significant bi- directional spillover effects between the two markets. Considering the pricing mechanism for the domestic crude oil, we think that the implications of the two spillover effects are different respectively: the spillover effect from London market to Chinese market is the result of the combined effects, but the one from Chinese market to London market represents an indirect effect According to the conclusion in this paper, we put forward what the government should pay attention to when arranging the import of crude oil.

Keyword: crude oil market; volatility spillover effect; multivariable GARCH model