Interdependence and spillovers between big oil companies and regional and global energy equity markets

Abstract

We examine spillovers and nonlinear dependence dynamics between big oil supermajors and regional and global energy equity markets. We derive our empirical results by fitting a directional spillover index, a conditional value-at-risk (CoVaR) method, and time-varying parameter copulas. Spillover index results indicate that big oil supermajors most largely spillover to the EU energy equity sector than to the US energy equity sector. A big oil supermajor British Petroleum (BP) consistently exerts some of the largest spillovers across regional and global energy markets. The CoVaR analysis reveals that on the downside, shocks from Royal Dutch Shell A most largely spillover to the US energy equity sector, while Royal Dutch Shell B does it on the upside. On the downside, Chevron most largely spillovers shocks to the EU energy equity sector, while BP does it on the upside. ExxonMobil most largely spillovers downside shocks to the world energy equity sector, while Royal Dutch Shell B does it on the upside. The Copula results show an asymmetric dependence between major oil companies and the US energy equity sector. The relationship between big oil companies and the EU energy equity sector is characterised by symmetric dependence dynamics.