Intl. Conference on Economics, Finance & Business, Paris

RETURN CONNECTEDNESS AMONG CRUDE OIL, NATURAL GAS, AND ENERGY STOCK MARKETS IN EUROPE

MAŁGORZATA JUST, KRZYSZTOF ECHAUST, AGATA KLIBER

Abstract:

This study considers the relationship among Brent crude oil, TTF natural gas price shocks, and the 31 biggest energy sector companies in Europe. We employ a connectedness framework of Diebold-Yilmaz based on LASSO-VAR, TVP-VAR, and QVAR models to assess the static and time-varying connectedness of commodity returns with stock markets in the center and tails of the distribution. We focus on the period from March 2018 to December 2023, comprising the COVID-19 pandemic and the period of the Russo-Ukraine war. Empirical results show the highest overall connectedness at the beginning of the COVID-19 crisis. We find that the crude oil market is a contributor of return shocks to the examined stocks, whereas we report no significant transmission between natural gas and stock markets. The largest companies from developed markets and the oil & gas sub-sector are the main contributors to the connectedness in the system in the median whereas the other companies generate much less shocks to the other markets and increase their contribution to the connectedness in extrema.

Keywords: return connectedness, Brent oil, Natural gas, Energy companies, COVID-19, Russia-Ukraine war