Horizon Dynamics of Systemic Risk in Global Energy Firms

Nur Ain Shahrier (), Zaheer Anwar () and Milena Migliavacca
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Nur Ain Shahrier: The South East Asian Central Banks (SEACEN) Research and Training Centre
Zaheer Anwar: Department of Accounting, Finance and Economics, Sunway Business School, Sunway University, Malaysia

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: Climate change and the energy transition are increasingly recognized recognised as sources of systemic financial risk. This paper examines how default-risk spillovers propagate among top global energy firms (TGEFs) using high-frequency distance-to-default data and a frequency-dependent TVP-VAR framework. We document a persistent horizon inversion: during tranquil periods, long-term connectedness dominates, reflecting slow-moving structural linkages, but crises such as COVID-19 trigger a collapse in long-term connectedness alongside a surge in short- and medium-term spillovers, which remain elevated even post-pandemic. These results indicate a structural shift toward faster, event-driven transmission channels. Environmental profiles also matter. Green Energy Leaders (GEL) exhibit stronger and more cohesive long-run connectedness than Brown Energy Leaders (BEL), suggesting that GEL firms can serve as long-horizon contagion amplifiers despite reputational resilience. Geography is equally decisive: developed markets show structurally persistent long-run connectedness, while developing markets display shallow, fragile networks where long-term co-movement appears only during severe global shocks. Overall, the findings reveal that systemic vulnerability in the energy sector arises from the interaction of horizon dynamics, environmental engagement, and institutional development. For central banks, the results underscore the importance of horizon-sensitive monitoring, transition-risk stress testing, and expanded systemic-risk oversight of non-financial energy firms.

Keywords: Climate; systemic risks; contagion; distance-to-default; energy sector; time-varying parameter; green and brown energy firms; developed and developing countries (search for similar items in EconPapers)
JEL-codes: G33 (search for similar items in EconPapers)
Date: 2025-11
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