Financial Markets, Energy Shocks, and Extreme Volatility Spillovers

Sabri Boubaker, S. Karim, M.A. Naeem and G.D. Sharma

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Abstract: In recent years, financial markets have experienced unprecedented uncertainties resulting from challenges such as the COVID-19 pandemic, energy shocks, and inflation mechanisms. This study investigates the interconnectedness of different financial markets (such as stocks, bonds, forex, oil, gold, and bitcoin) across extreme quantiles of volatility. To capture volatility spillovers, energy shocks, and inflation mechanisms, the study employs a novel technique called quantile-VAR, as traditional mean-based measures may not be suitable in extreme market conditions. The empirical findings indicate an increased density of networks in both the lower and upper tails of asset volatilities. Moreover, the results demonstrate an asymmetric impact of the COVID-19 outbreak, energy shocks, and inflation, with right-tail dependencies being more significant and common compared to left-tail dependencies. Additionally, the analysis of time-varying effects reveals significant shock events, ranging from the Shale Oil Crisis to the COVID-19 outbreak, including energy shocks stemming from the recent Russia-Ukraine war. These findings have important implications for investors, financial markets, fund and portfolio asset managers, and policymakers in managing risk, particularly during large shock events. \textcopyright 2023

Keywords: Commerce; COVID-19; Empirical findings; Energy; energy resource; Energy shock; Energy shocks; Extreme quantiles; financial market; Financial markets; inflation; Inflation mechanism; Inflation mechanisms; Investments; Market condition; market conditions; Novel techniques; Quantile VAR; Risk management; Russian Federation; spillover effect; Ukraine; Uncertainty; Value engineering; vector autoregression; Volatility spillovers (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (9)

Published in Energy Economics, 2023, 126, ⟨10.1016/j.eneco.2023.107031⟩

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Journal Article: Financial markets, energy shocks, and extreme volatility spillovers (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04435469

DOI: 10.1016/j.eneco.2023.107031

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