Does oil connect differently with prominent assets during war? Analysis of intra-day data during the Russia-Ukraine saga

Abstract

The ongoing Russia-Ukraine war is obviously the most prominent war in Europe since the second world war, changing the dynamics of the oil and other prominent markets. As the oil market has been historically known to associate with other financial and commodity markets, it is important to see if oil connects differently with prominent financial assets during market turbulence caused by a war. Thus, we make the first attempt to examine how oil connects with prominent financial assets, namely bonds, bitcoin, U.S. dollar, gold, and stocks, using intra-day data, before and during the war. We find that connectedness is stronger during the war than before it. Oil becomes a net transmitter of spillovers during the war, unlike in the pre-war era when it is characterized as a net receiver of spillovers. Also, whereas the net directional pairwise results suggest heterogeneity regarding how oil connects individually with each of the remaining assets before the war, oil has a strong spillover effect on all of them during the war. However, the spillover effect is transitory, as it dies out over time. The findings are robust to intra-day data of different frequency, and have suitable implications for short-term investors, and further agendas for future research in relation to the impacts of the war are provided.