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Asymmetric spillover effects in energy markets

Author

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  • Tiwari, Aviral Kumar
  • Aikins Abakah, Emmanuel Joel
  • Doğan, Buhari
  • Adekoya, Oluwasegun B.
  • Wohar, Mark

Abstract

This paper explores the asymmetric relationship between clean and dirty energy markets. The study uses the time-varying and frequency-domain spillover approaches, while accounting for asymmetries. We use natural gas, gasoline, gas oil, heating oil, crude oil, coal, petroleum, kerosene, propane, and diesel to denote dirty energy markets and wind, solar and clean energy markets to denote clean energy markets. We use daily data running from May 18, 2011, to August 12, 2020. According to the results obtained, good news in fluctuations in global energy market indices increases the integration of international energy markets in the long run compared to bad news. Our result show that transmission of good and bad volatilities in global energy market indices are dispersed with different time-varying intensities. Empirical evidence further reveals that good news increases integration of international energy markets in the long run compared to bad news. Additionally, markets transmit more bad volatility on average than good volatility during global events. According to the results of the research, we foresee that portfolio managers and investors may experience difficulties in diversifying opportunities in financial volatility periods in the short term. Overall, our findings reveal asymmetric risk effects in investment opportunities between clean and dirty energy. As a result of this information, investors can diversify their investments in the clean energy sector in the long term by using the asymmetry in good and bad fluctuations.

Suggested Citation

  • Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Doğan, Buhari & Adekoya, Oluwasegun B. & Wohar, Mark, 2024. "Asymmetric spillover effects in energy markets," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 470-502.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:470-502
    DOI: 10.1016/j.iref.2024.02.001
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