Time-varying linkages between energy and stock markets: Dynamic spillovers and driving factors

Integration between international energy prices and stock market returns is critical for global economics and politics. In this study, we employ a TVP-VAR (time-varying parameter vector autoregression) connectedness decomposition approach to investigate the time-varying linkages between a diversified energy portfolio comprising oil, coal, natural gas, and stock returns in G7 countries and China. This approach allows us to show the dynamic spillovers and explore the driving factors underlying the dynamic patterns. We find that geopolitical risks, global economic policy uncertainties, and equity market volatility can influence cross-market spillovers. This study expounds the effect of energy financialization.

Automated summary

Integration between international energy prices and stock market returns is crucial for global economics and political landscape. This study utilizes a TVP-VAR approach to examine the time-varying connections between a diversified energy portfolio and stock returns in G7 countries and China. The findings suggest that geopolitical risks, global economic policy uncertainties, and equity market volatility can impact cross-market spillovers. This study contributes to the understanding of the effect of energy financialization.