Risk Spillover Effects In International Energy Future Market:Based On The Copula-CoVaR Framework

Energy is the basic resource in the economic activities of every nation.Volatility of the energy prices can have direct and significant impact on a nation’s industrial production,international balance of payments and the price levels of both industrial and consumer goods.Since the 1970s,due to the intention of hedging energy price volatility,various financial derivatives of energy have been created and gradually developed,and the financial attributes of the energy markets have also been increased significantly.Energy futures is the most important part of the energy derivatives market.It played important role in pricing energy spot and hedging energy price risk.With the reasons of increasing connection in the international energy market and the popularity of arbitrage across different commodities and markets,the price spillover effect of energy futures markets become faster and more significant Although China’s energy futures market established late,it has developed rapidly in recent years.The Shanghai crude oil futures that listed in 2018 is a symbol of the internationalization of China’s energy futures market,although the internationalization of energy futures market could improve China’s ability on pricing of energy markets,but this also makes price volatility in the international energy futures market more likely to have an impact on the domestic market through the spillover effects.This first chapter of this article is the background and significance of this research,then it’s the summarization and reviews of the existing research on the energy market and spillover effects.After sorting out the relevant theories at the second chapter,the third chapter firstly summarized and analyzed the history and the current status of the international futures market,and some of the most important and influential energy futures contracts.the next part of this chapter is the analysis of the risk resources and the transmission mechanism of spillover effects of the energy future markets.Based on the analysis above,the fourth chapter picked 5 representative international energy futures contracts,then used the Copula-CoVaR method to measure the spillover effects between the energy futures contracts,and made a analysis based on the direction and magnitude of the spillover effect obtained by empirical testing.The main conclusions of the empirical analysis are:(1)There is basically positive spillover effect between all of the energy futures contracts,when one contract is at a risk situation,the risk degree of other contracts will increase.(2)The spillover effects of crude oil futures Compared is the most significant one comparing with other energy futures,while the spillover effects of natural gas futures is the lowest.(3)The differences of commodities and the different locations of the production and delivery of one commodity have an impact on magnitude the spillover effects between energy futures contracts.The spillover effect between futures contracts of the same commodity and different locations is greater than those contracts of different varieties and the same location,and the contracts with different varieties and the same location have greater spillover effects than those contracts with different varieties and different locations.At the results of the research,it’s proposed that some suggestions on how to deal with the spillover effects of the international energy futures market,including developing China’s energy futures market,establishing a risk management system,and strengthening energy futures market supervision,etc.At the end,there are the prospects and the deficiencies of this article.