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Toward the integration of European gas futures market under COVID-19 shock: A quantile connectedness approach

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  • Chen, Yufeng
  • Wang, Chuwen
  • Zhu, Zhitao

Abstract

Natural gas is an essential resource to achieve energy transition and carbon neutrality, and the allocation of natural gas resources depends on the integrated development of the natural gas market. This paper presents a quantile spillover approach to measure changes in the integration of the European gas futures market when major events occur. The empirical results show that extreme events exacerbate the transmission of market risk, and COVID-19 has weakened market integration. The arrival of severe cold weather led to a supply and demand imbalance in the market, and the level of market resource integration was hit hard. In addition, when active and effective reform policies are implemented, they help restore market connectivity. From the perspective of risk transmission within the system, this paper also finds that liberalized or highly liquid hubs can better cope with extreme risks. The findings have implications for policymakers to improve market integration and provide important insights for investors to trade during turbulent times such as COVID-19.

Suggested Citation

  • Chen, Yufeng & Wang, Chuwen & Zhu, Zhitao, 2022. "Toward the integration of European gas futures market under COVID-19 shock: A quantile connectedness approach," Energy Economics, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:eneeco:v:114:y:2022:i:c:s0140988322004224
    DOI: 10.1016/j.eneco.2022.106288
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