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Systemic risk transmission to energy futures: weekend information gaps and the breakdown of pricing efficiency

Author

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  • Conlon, Thomas
  • Corbet, Shaen
  • Larkin, Charles
  • Muñiz, Jose Antonio

Abstract

This study examines the efficiency of systemic risk transmission to international oil futures markets by analyzing the dynamic connectedness between three distinct Common Volatility (COVOL) measures: Energy, Asset, and Country, and compares such with five major oil benchmarks. Utilizing a framework that combines TVP-VAR, EGARCH, and wavelet coherence analyses, we investigate whether nontrading weekend breaks create a structural barrier to the pricing of systemic risk. Our findings identify a significant Monday effect, characterized by a pronounced decoupling between systemic risk signals and oil futures prices. The effect is highly state-dependent: during the COVID-19 pandemic, the disconnect dissipated for Energy and Asset COVOL but intensified for Country COVOL, while geopolitical conflicts extended the breakdown of the signal into Tuesday. These results indicate a hierarchy of influence in which country-level systemic risks exert the strongest effect on oil markets.

Suggested Citation

  • Conlon, Thomas & Corbet, Shaen & Larkin, Charles & Muñiz, Jose Antonio, 2026. "Systemic risk transmission to energy futures: weekend information gaps and the breakdown of pricing efficiency," LSE Research Online Documents on Economics 140276, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:140276
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    File URL: https://researchonline.lse.ac.uk/id/eprint/140276/
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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