Evidence from the nonlinear autoregressive distributed lag model on the asymmetric influence of the first wave of the COVID-19 pandemic on energy markets

The COVID-19 pandemic remained a global risk factor and integrated into various means in the functioning of companies, economies and financial markets. Therefore, this paper investigates how COVID-19 influences the energy market in the main financial markets (China, France, Germany, Italy, Spain and the United States), using time series from February 28, 2020, to November 3, 2020. The goal of this research is to investigate the asymmetric impact of COVID-19 from leading financial markets on energy commodities. In this regard, the non-linear auto-regressive distributed lag (NARDL) framework is employed to capture the long-run asymmetric reactions. The econometric design allows to explore the long-term asymmetric reactions of dependent variables through positive and negative partial sum decompositions of changes in the explanatory variables. The quantitative results show a significant long-run asymmetric interdependence between the number of new SARS-CoV-2 incidence and mortality and the daily percent change in close price of future contracts pertaining to Brent oil, crude oil WTI, carbon emissions, gasoline RBOB, heating oil, Chukyo kerosene, and natural gas. Furthermore, no asymmetry is found in the case of ethanol and fuel oil futures. The novelty of this article is the study of the impact of COVID-19 on the energy sector during the first two waves of COVID-19 by applying the NARDL model that allows to capture long-term asymmetric reactions. Certainly, further research on this topic is necessary due to the permanent shifts in the pandemic, as well as the availability of longer data periods on COVID-19.

Automated summary

This paper investigates the impact of COVID-19 on the energy market in the main financial markets using the NARDL model. The results show a significant long-term asymmetric interdependence between COVID-19 indicators and the daily percent change in the price of various energy commodities.