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Dynamic volatility transfer in the European oil and gas industry

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  • Huszár, Zsuzsa R.
  • Kotró, Balázs B.
  • Tan, Ruth S.K.

Abstract

The study examines dynamic volatility transmissions among European energy industry participants along the production lines of Upstream, Midstream, Downstream, and Integrated Oil Gas (IOG) segments. Using Diebold-Yilmaz (2012, 2014) spillover index, during the sample period of October 2006 to June 2022, we find significant internal volatility spillover among the European energy sector participants, primarily emanating from Upstream companies. In subsamples, we show that Downstream and Midstream segments can also become volatility transmitters under certain conditions. More importantly, the large Russian IOG companies became significant volatility transmitters after 2022 with the onset of Russia's war on Ukraine, potentially causing major system instability because these IOG firms were traditionally volatility absorbers in the network. Overall, we provide insights about the interconnectedness among European energy companies during normal and extreme market conditions and highlight important system dynamics that could be useful for policy makers and investors.

Suggested Citation

  • Huszár, Zsuzsa R. & Kotró, Balázs B. & Tan, Ruth S.K., 2023. "Dynamic volatility transfer in the European oil and gas industry," Energy Economics, Elsevier, vol. 127(PA).
    • Handle: RePEc:eee:eneeco:v:127:y:2023:i:pa:s0140988323005509
    DOI: 10.1016/j.eneco.2023.107052
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    More about this item

    Keywords

    Connectedness; Energy markets; Europe; Oil and natural gas; Volatility spillover;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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