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Information spillover dynamics of the energy futures market sector: A novel common factor approach

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  • Kuruppuarachchi, Duminda
  • Premachandra, I.M.

Abstract

We investigate sector level information spillovers from energy to other futures market sectors using a novel conditionally heteroscedastic common factor (CHCF). CHCF represents common trends of macroeconomic influences on futures markets. We find that energy sector has the highest degree of commonality compared to other sectors. Conditional correlations between energy and non-energy sectors are highly persistent. The volatility spillover from the energy sector is prominent compared with mean and extreme market risk spillovers. Extreme risk spillovers from the energy to other sectors have an asymmetric effect. Shocks to energy futures have a significant potential impact on other markets during crises.

Suggested Citation

  • Kuruppuarachchi, Duminda & Premachandra, I.M., 2016. "Information spillover dynamics of the energy futures market sector: A novel common factor approach," Energy Economics, Elsevier, vol. 57(C), pages 277-294.
    • Handle: RePEc:eee:eneeco:v:57:y:2016:i:c:p:277-294
    DOI: 10.1016/j.eneco.2016.05.015
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    More about this item

    Keywords

    Information spillover; Energy futures; Granger causality; Heteroscedastic principle component factors; Impulse response functions;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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