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Gas price caps and volatility transmission in commodity and equity markets

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  • Botta, Corrado
  • Cerqueti, Roy
  • Savona, Roberto

Abstract

We study the effects of alternative price-cap mechanisms applied to the European gas market on price and volatility dynamics. Within a multivariate framework with dynamic correlations, we simulate counterfactual policy regimes and trace their spillovers to energy, agricultural, metal, and equity markets. We focus on the European natural gas market from January 2013 to October 2023. The results show the following. First, a cap rule based on a fixed price mechanism consistently lowers energy prices, even if volatility can be high. Second, the gas price cap measure adopted by the European Commission and currently enforced is more conservative in terms of the probability of activation. Third, a mechanism directly related to gas price volatility performs better in containing energy prices and taming volatility spillover effects in commodity and equity markets.

Suggested Citation

  • Botta, Corrado & Cerqueti, Roy & Savona, Roberto, 2026. "Gas price caps and volatility transmission in commodity and equity markets," Journal of Banking & Finance, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:jbfina:v:184:y:2026:i:c:s0378426625002341
    DOI: 10.1016/j.jbankfin.2025.107614
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    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy

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