Volatility spillovers across Russian oil and gas sector. Evidence of the impact of global markets and extraordinary events

Abstract

This paper provides empirical evidence on the evolution of the impact of external shocks on the volatility connectedness of Russian oil and gas companies’ stock prices. We examine how the spillover structure has changed following the outbreak of COVID-19, as well as under the impact of the 2022–2023 events.We have extended the Diebold–Yilmaz approach to calculate conditional connectivity measures adjusted for the influence of global factors and unexpected shocks caused by extraordinary events.We use an augmented vector autoregressive model (VARX) to evaluate the adjusted conditional connectivity measures. The dynamics of connectivity indices are analyzed using the moving window method for VAR and VARX models, as well as using a dynamic model with time-varying coefficients (TVP-VAR). The comparison of adjusted and unadjusted connectivity measures allows us to draw conclusions about the impact of changes in foreign financial markets as well as shocks caused by extraordinary events on connectedness structure.We found that measures of conditional connectivity change much more slowly than unconditional ones. Our results support the hypothesis that essential part of the fluctuation of Russian oil and gas connectedness indices can be explained by exposure to unexpected shocks and global economic and political factors. Accordingly, the transformation of the network structure of risk transfer occurs quite smoothly, without sharp jumps and takes a considerable amount of time.