Time-varying co-movement analysis between COVID-19 shocks and the energy markets using the Markov Switching Dynamic Copula approach

• Main Authors: Paravee Maneejuk, Sukrit Thongkairat, Wilawan Srichaikul
• Format: Article
• Language: English
• Published: Elsevier 2021-09-01
• Series: Energy Reports
• Subjects: Co-movement; COVID-19 shock; Energy markets; Markov Switching Dynamic Copula-based approach
• Online Access: http://www.sciencedirect.com/science/article/pii/S2352484721003486
• ISSN: 2352-4847

The spread of the COVID-19 pandemic in 2020 has contributed a large impact on various economic sectors and the energy sector is no exception. In this paper, we analyze the time-varying correlation between COVID-19 shocks (positive and negative) and energy markets (natural gas, gasoil, heating oil, coal, and crude oil) in the time-varying environment. This study adds to the literature by implementing the Markov-switching dynamic copula with Student-t distribution to explore the unexpected COVID-19 pandemic shock effects on energy markets. Our results revealed that (i) there is evidence of correlation between COVID-19 shocks and all energy markets; (ii) the contributions of COVID-19 shocks on energy markets are not constant along 2020. (iii), there is evidence of a similar response of the energy markets to the positive and negative COVID-19 shocks.