Volatility Spillovers in Emerging Markets: Oil Shocks, Energy, Stocks, and Gold

Abstract

This paper extends the literature on the relationship between oil price shocks and financial markets by examining the effect of supply and demand oil shocks on emerging energy markets, stocks of emerging markets, and gold and exploring the impact of unpredictable oil events on the degree of connectedness among these markets. We show that the effect of supply oil price disturbances drives volatility spillovers in emerging markets with prominent medium- and long-term effects, unlike demand oil price unanticipated changes, particularly during turbulent periods such as the 2008 subprime crisis, the COVID-19 pandemic, and the 2015 oil price crash. These volatility spillover effects are influenced by a marked relationship between supply oil disturbances and emerging energy markets. We also expose that the COVID-19 pandemic volatility spillover consequences in emerging markets are unprecedented compared to the 2008 financial crisis. This can be attributed to the different nature of the related oil price disturbances and financial crises. Overall, the findings highlight the role of crude oil supply shocks as drivers not only of volatility dynamics in energy and equity emerging markets but also of financial connectedness patterns in these economies.

The Dynamic Cointegration Relationship between International Crude Oil, Natural Gas, and Coal Price

“…Alzate-Ortega et al (2024) investigated the impact of supply-demand oil shocks on emerging energy markets, emerging market stocks, and gold, revealing that the volatility spillover effects on emerging markets during the COVID-19 pandemic were unprecedented compared to the 2008 financial crisis [21]. Mothana Obadi et al (2024) analyzed the developments, events, and turning points experienced in each oil and gas market since the early 1970s, discovering that geopolitical events played an active and prominent role in shaping the trends of oil and gas prices in global markets.…”

“…After conducting an in-depth study on the data of international crude oil, natural gas, and coal price indices from January 2009 to December 2023, we found a long-term cointegration relationship between crude oil and natural gas, while the results for coal were not significant. However, upon further analysis of the data it became apparent that, starting from January 2020, the COVID-19 pandemic, coupled with the ongoing Russia-Ukraine war, had a significant impact on the energy markets of the EU and globally, leading to a distinct divergence in the price trends of these three commodities [21]. To more accurately assess the impacts of these events on the relationship between international crude oil, natural gas, and coal markets, we conducted further cointegration analysis for the periods of January 2009 to December 2019 and January 2020 to December 2023, respectively.…”