DOI: 10.1177/01445987241228322 ISSN: 0144-5987

A study on time-varying dependence between energy markets and linked assets based on the Russia-Ukraine conflict

Chen Yan, Shi Zhun
  • Energy Engineering and Power Technology
  • Fuel Technology
  • Nuclear Energy and Engineering
  • Renewable Energy, Sustainability and the Environment

The energy industry, acutely sensitive to geopolitical shifts due to the Russia-Ukraine conflict, experiences sustained disturbances in global energy markets, reshaping global energy supply dynamics and significantly influencing global trade patterns. Utilizing static and dynamic GARCH-Copula models, this study elucidates the dependency between energy markets and related assets. The Copula function, when compared with the multivariate GARCH model, demonstrates distinct advantages, notably in delineating joint asset distributions, capturing market dependence's nonlinear traits, and highlighting robust tail correlation structures. Beyond the average inter-market dependence, its tail correlation offers a vital perspective on market risk. This research delves into the temporal and structural variations in interdependence between energy markets and related assets. It probes potential structural breakpoints in dynamic interdependence and pinpoints their occurrences. By focusing on the Russia-Ukraine conflict, this study offers a holistic view of the changing interplay between the energy market and other asset categories, providing pivotal insights for investor portfolio optimization, regulatory oversight, and risk mitigation. Moreover, employing wavelet analysis, this study examines the frequency domain traits of the interdependency between energy markets and associated assets. As frequency wanes, market price fluctuations become less pronounced. The continuous wavelet power spectrum indicates that price variations are predominantly mid to high frequency. Cross-wavelet transform results suggest that correlations between energy markets and related assets are more influenced by short-term perturbations than enduring shifts.

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