Changes in volatility leverage and spillover effects of crude oil futures markets affected by the 2022 Russia-Ukraine conflict

Abstract

We investigate the changes in the volatility regular/inverse leverage and spillover effects of three crude oil futures markets—WTI, Brent, and Oman—before and after the outbreak of the 2022 Russia-Ukraine conflict. We find that this geopolitical conflict has significantly changed the leverage effect in the three markets, and increased slightly and stabilized the dynamic conditional correlation and weakened the volatility spillover effect between every pair of them. In contrast to the inverse, the regular leverage effect remains the dominant effect driving oil prices during both the sub- and whole-sample periods. In the face of this conflict, Oman can play a good role in portfolios, not necessarily in hedging, of crude oil futures; and it highlights the importance in risk-taking of Asian crude oil-exporting countries. These findings have implications for crude oil-exporting and importing countries, and futures investors.