 Compounding geopolitical and energy risks: A clustered stochastic multi-COVOL modelOvielt Baltodano López, Monica Billio, Roberto Casarin and Michele Costola Energy Economics, 2025, vol. 149, issue C Abstract: This paper investigates the relationship between stock returns in the energy sector, energy uncertainty, and geopolitical risk. To this end, we propose a parsimonious and flexible model to extract common volatility factors (COVOL) from panel data. This general nonlinear multi-factor framework organizes panel units into groups based on different exposures to individual and compounding risks to reduce the number of parameters to be estimated. The group membership of the units is unknown, which naturally calls for using stochastic partition models. Random partition and compounding relationships are encoded in the weighted hyper-edges of a random hypergraph where the vertexes are the individual risks. In the empirical analysis, we study the volatility transmission in a multi-country setting and the role of individual and compounding risks. Keywords: Compounding risks; Clustered factors; Latent factors; Energy uncertainty; Financial markets; Geopolitical risk; Volatility comovements (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005274 DOI: 10.1016/j.eneco.2025.108700 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.