Abstract
In this article, we aim to study systemic risk spillovers for European energy companies and to determine the spillover network of the energy sector with other economic sectors. To examine the spillovers within the energy sector, we employ three systemic risk measures. We then embed the results of these models into a Diebold–Yilmaz framework. Moreover, we consider an entropy procedure to extract a Bayesian formulation of its systemic risk spillover. This allows us to determine which company in our sample contributes the most to systemic risk, which company is the most vulnerable to systemic risk, and the place of the energy sector within risk networks. Our results reveal the fact that all companies manifest enhanced spillovers during 2008, early 2009, and 2020. These episodes are associated with the dynamics of the global financial crisis and the pandemic crisis. We notice that specific companies are risk drivers in the sector in both times of market turbulence and calm. Lastly, we observe that several economic sectors such as banks, capital goods, consumer services, and diversified financials generate relevant spillovers towards the energy sector.
Highlights
The main objective of this paper is to examine systemic risk spillovers for the European energy sector, considering both the contribution of individual energy firms and the aggregate spillovers between the energy sector and other economic sectors
Our first batch of results document the spillovers recorded among the energy companies as captured by the CoVaR, Delta CoVaR, and marginal expected shortfall (MES) measures
We visually present our results in the three figures of Appendix C
Summary
The main objective of this paper is to examine systemic risk spillovers for the European energy sector, considering both the contribution of individual energy firms and the aggregate spillovers between the energy sector and other economic sectors. Caused turbulence in global financial markets which translated into important negative economic effects Such monumental negative externalities constituted a catalyzing factor for phenomena such as the European Sovereign Debt Crisis of 2009, which had paramount effects on both the financial and real sides of the economy. This crippling impact was visible across all economic sectors, including energy markets. At the portfolio level, having information about the risk in the energy futures market helps investors to optimize their market risk mitigation strategies In both developed and developing markets, crude oil acts as a prime driver of various economic variables
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have