Abstract
This study aims to measure the risk dependence between the two most important energy markets, oil and gas, to analyze their risk spillovers. To this end, we apply different extreme risk measures (the value at risk, conditional value at risk, delta conditional value at risk, and copula) to high-frequency energy data to capture the intraday dynamic dependence between oil and gas prices (using, in particular, a 5-min intraday sample data from November 2014 to October 2017). Our analysis shows two interesting findings. First, while we highlight an extreme risk dependence between oil and gas markets, the risk spillover from the oil to the gas market is higher than that from the gas to the oil market. Second, the upward and downward risk spillovers exhibit asymmetry, as extreme negative shocks produce a stronger spillover effect than do extreme positive shocks. The exploration of these systemic risk forms provides significant insights for policymakers and investors in terms of risk management and portfolio diversification.
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Notes
See Ftiti et al. (2019a) for a concise survey on the relationship between energy prices and trading volumes.
Several studies consider the CoVaR approach to model systemic risk, including the works of Trabelsi and Naifar (2017), who study systemic risk of the Islamic index market, Reboredo (2015), who analyzes the dependence between oil and renewable energy markets, and Mensi et al. (2017), who consider systemic risk between the oil and stock markets. Finally, we employ delta CoVaR as further analysis for risk spillover.
Other thresholds were also experimented and conclusions remain unchanged. They are not reported to save space but available upon request.
The reported results for the downside and upside VaR correspond to estimation with probability levels q = 5% and q = 95%, respectively.
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Ben Ameur, H., Ftiti, Z., Jawadi, F. et al. Measuring extreme risk dependence between the oil and gas markets. Ann Oper Res 313, 755–772 (2022). https://doi.org/10.1007/s10479-020-03796-1
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DOI: https://doi.org/10.1007/s10479-020-03796-1