Spillover effects of geopolitical risks on global energy markets: Evidence from CoVaR and CAViaR-EGARCH model

Abstract

This study investigated the spillover effects of geopolitical risks on energy (crude oil, coal and natural gas) markets. The empirical evidence is based on the CoVaR index and the CAViaR-EGARCH model. Results demonstrate that the spillover effects of geopolitical risks on the global energy market are nonlinear, asymmetric and time-varying. With each 1% rise in global geopolitical risks, the left tail risks in the crude oil, coal, and natural gas markets decreased by 0.179%, 0.119% and 0.113%, while the right tail risks increased by 0.144%, 0.135% and 0.097%, respectively. In addition, the magnitude of energy crises triggered by different geopolitical events varies. Lastly, the spillover effects of GPR on energy markets vary considerably across nations, with more substantial effects observed on average in BRICS than in G7 countries. The primary implication is to provide references for government and energy investors to avoid energy market risks timely.