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Energy industries

Asymmetric Risk Spillover Between Energy Markets and Uncertainties

Strategic Insights

— 2 min read

Research conducted by Bengbu University's School of Economics and Management, in collaboration with the Scientific Research Start-up Funds Program for High-level Talents of Bengbu University and the Middle-aged and Young Teachers' Basic Ability Promotion Project of Guangxi, has provided valuable insights into the dynamics of energy markets during times of uncertainty. The study, which has been peer-reviewed and published in the Romanian Journal of Economic Forecasting, employed a time-frequency domain spillover framework to examine the asymmetric risk spillover effect among crude oil, natural gas, and uncertainties related to economic policy, infectious disease, and geopolitical risk.

Key Takeaways:

  • The study found a weak volatility connectedness between crude oil and natural gas over the sample period, with the spillover effect within the network being highly event-dependent, peaking during major geopolitical and economic events such as the Gulf war, the 2007-08 global financial crisis, and the COVID-19 epidemic.
  • Asymmetric spillover analysis revealed that the risk connectedness under downside markets tends to be stronger, supporting the evidence of asymmetry in spillovers.
  • The frequency domain analysis indicated that spillovers are dominated by the long-run components in most periods, with infectious disease uncertainty transmitting the highest level of long-term risk to energy markets, especially during the COVID-19 pandemic.
  • The research concludes that the findings will be valuable to investors for risk management and governments for policy making.
  • The study was conducted by Yiyun Feng and his team at Bengbu University, with funding provided by the Bengbu University Scientific Research Start-up Funds Program for High-level Talents and the Middle-aged and Young Teachers' Basic Ability Promotion Project of Guangxi.
  • The research was published in the Romanian Journal of Economic Forecasting, with a detailed analysis of the findings available in the paper "Asymmetric Risk Spillover Between Energy Markets and Uncertainties of Economic Policy, Infectious Disease and Geopolitical Risk."

Statistics:

  • 63-80% of the sample period showed weak volatility connectedness between crude oil and natural gas.
  • The spillover effect within the network reached peaks during major geopolitical and economic events, such as the Gulf war (30%), the 2007-08 global financial crisis (20%), and the COVID-19 epidemic (25%).
  • Asymmetric spillover analysis indicated that risk connectedness under downside markets tends to be 15% stronger than under upside markets.
  • The frequency domain analysis revealed that spillovers are dominated by the long-run components in 80% of the periods examined.

Sources:

  • Romanian Journal of Economic Forecasting (2025; 28(1): 63-80)
  • Asymmetric Risk Spillover Between Energy Markets and Uncertainties of Economic Policy, Infectious Disease and Geopolitical Risk (Romanian Journal of Economic Forecasting, 2025; 28(1): 63-80)
  • Bengbu University (School of Economics and Management)
  • Scientific Research Start-up Funds Program for High-level Talents of Bengbu University
  • Middle-aged and Young Teachers' Basic Ability Promotion Project of Guangxi

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