Risk Transmission Mechanism between Energy Markets: A VAR for VaR Approach

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group 
Research Seminars in Finance
 
Topic: Risk Transmission Mechanism between Energy Markets: A VAR for VaR Approach
 
Speaker:Xunpeng (Roc) Shi, University of Technology Sydney (ACRI)
 
Abstract: The Great Recession of 2007-2009 originated in the US has brought to surface the need for measuring and monitoring the transmission of extreme downside market risk. This paper investigates the risk transmission mechanism among the US oil and natural gas markets. By applying the recently introduced test statistics based on cross-quantilogram function, we first confirm the existence of risk spillover between these two energy markets. Furthermore, we apply the multivariate quantile regression model (VAR for VaR) to quantitively uncover these tail-interdependency patterns. Our result shows that the shocks in the oil market substantially affect the Value at Risk (VaR) in the natural gas market. Moreover, the extreme market risk is easier to transmit across the markets, compared to the moderate risk. We also document considerable asymmetric patterns in the risk transmission mechanism, cautioning the underlying weakness of adopting the volatility to measure the market risk. Our results are in general robust to other regional energy markets such as Europe and Asia, but the heterogeneities also exhibit. The findings of this paper have important implications  for the academic researchers, policy makers, and business practitioners. 
 
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday, 31st July.
 
Date: Wednesday, 2nd August 2017      
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
            Building 8
            Dr Chau Chak Wing Building
            14 - 28 Ultimo Road, Ultimo
 
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
 
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)
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UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.