Interplay of Crises: Unpacking Intraday Spillovers in Oil and European Equities in the Shadow of the COVID-19 and the Ukraine-Russia War

Abstract

This study investigates the time-varying frequency of spillovers between European stock markets and oil during the COVID-19 pandemic and the Russia-Ukraine war. Using the spillover index by Diebold and Yilmaz in 2012 and Baruník and Křehlík in 2018, we analyze high-frequency data at a five-minute interval to analyze the interplay between crude oil market returns and the Stoxx 600 index returns, including sectors such as auto, basic material, banks, chemicals, food and beverage, health, industrials, insurance, oil and gas, retail, real estate, technology (tech), telecommunication (telecom), and utilities. The sample period is January 3, 2022, to March 25, 2022. Our findings reveal a substantial degree of connectedness within this financial network, with specific sectors—auto, chemicals, food, industrials, insurance, real estate, retail, tech, and telecom—acting as net transmitters of shocks, while other sectors assume the role of net receivers. The Russia-Ukraine war is a significant driver of these interconnected dynamics. Spillovers are most prevalent in the medium-term horizon, with the time dimension affecting the role of sectors and oil. Furthermore, our research highlights the potential benefits of adding oil assets to portfolios, enhancing risk-adjusted performance. However, ongoing risk management remains crucial due to the dynamic hedge ratios. This study offers practical insights for investors and policy makers, aiding risk management and investment strategies in turbulent markets.