Modeling extreme risk spillovers between crude oil and Chinese energy futures markets

Xiaohang Ren, Yiying Li, Xianming Sun, Ruijun Bu and Fredj Jawadi

Energy Economics, 2023, vol. 126, issue C

Abstract: This paper aims to model the extreme risk spillovers between crude oil and Chinese energy futures markets to assess the effect of excessive oil price volatility on Chinese energy sectors. To this end, we set up a Generalized Autoregressive Conditional Heteroskedasticity - Extreme Value Theory Value-at-Risk specification (or GARCH-EVT-VaR hereafter) to flexibly model extreme risks. Moreover, we focus on two international crude oil futures markets and ten Chinese energy futures markets to measure the extreme risk spillovers. Our findings point to two main results. First, we find significant evidence of extreme risk spillovers from the two international crude oil markets to Chinese energy futures markets, which are asymmetric. More specifically, the spillover effects across extreme risks are more significant than those measured with the return series. Second, some Chinese energy future markets also exhibit internal extreme risk spillovers from the petrochemical sector to the coal sector. These findings reveal the potential vulnerability of Chinese energy sectors and call for active risk management policies to better hedge Chinese energy futures markets against extreme events.

Keywords: Connectedness; Network analysis; Energy futures markets; Extreme risk spillovers (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323005054

DOI: 10.1016/j.eneco.2023.107007

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