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Spillovers beyond the variance: exploring the natural gas and oil higher order risk linkages with the global financial markets

Author

Listed:
  • Gomez-Gonzalez, Jose Eduardo
  • Hirs-Garzon, Jorge
  • Uribe, Jorge M.

Abstract

We explore the higher order linkages between energy commodity markets and global financial markets. Our focus is on spillovers of realized good and bad volatilities, realized signed jump variation, realized skewness and realized kurtosis. Our results show that the measurement of risk spillovers is sensitive to the definition of risk used in their construction. Asymmetries between good and bad volatility transmission matter, and results when jumps and higher order risk measures are considered are substantially different from those obtained when traditional volatility measures are used. We provide empirical support for theoretical asset pricing models that conduct the optimization required for portfolio balancing in the mean-variance-skewness space by showing that risk diversification opportunities vary greatly when one considers variance or skewness as the fundamental proxy for risk.

Suggested Citation

  • Gomez-Gonzalez, Jose Eduardo & Hirs-Garzon, Jorge & Uribe, Jorge M., 2020. "Spillovers beyond the variance: exploring the natural gas and oil higher order risk linkages with the global financial markets," Working papers 46, Red Investigadores de Economía.
    • Handle: RePEc:rie:riecdt:46
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    More about this item

    Keywords

    Energy commodity markets; Risk spillover; Higher order risk measure; LASSO methods;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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