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Tail risk contagion and safe haven dynamics: Analyzing U.S. market implied volatility effects on China's energy futures

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  • Chang, To-Han
  • Wang, Nientsu

Abstract

This research explores the tail risk contagion of U.S. market implied volatility (USIV) on China's energy futures (CEF) markets and examines strategies to utilize CEF operations as a safe haven. The analysis identifies eight unique features of CEF safe havens designed to mitigate the impact of significant increases in USIV, considering CEF characteristics for mutually long and short situations and various investment horizons. Utilizing trading data from March 27, 2018, to October 30, 2023, the empirical findings reveal that coking coal futures in China can serve as a weak haven for investors throughout the sample period, particularly for short-position investors seeking to offset tail risks in the U.S. stock market and U.S. gold market. Furthermore, many of the characteristics within CEF are only persistent for short durations. This research enhances our understanding of the complex dynamics of global energy trade patterns, particularly the evolving role of China, and provides insights for stakeholders on the functioning of energy markets and the pursuit of sustainable energy futures. Policymakers should consider these results to progress approaches that enhance the stability and resilience of energy markets, encouraging informed investment and risk management practices that contribute to sustainable economic growth.

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  • Chang, To-Han & Wang, Nientsu, 2025. "Tail risk contagion and safe haven dynamics: Analyzing U.S. market implied volatility effects on China's energy futures," Energy, Elsevier, vol. 318(C).
    • Handle: RePEc:eee:energy:v:318:y:2025:i:c:s0360544224039185
    DOI: 10.1016/j.energy.2024.134140
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