Key points are not available for this paper at this time.
This study investigates volatility spillovers, network connectedness, and hedging strategies among major fossil fuels and energy stock indices in the five highest fossil fuels-consuming countries from 2008 to 2024. Using TVP-VAR and DCC-GARCH models, we examine how geopolitical and economic shocks influence market interactions. Results show that volatility connectedness increases during turbulent periods, peaking during the COVID-19 pandemic. Brent crude oil incurs the highest hedging cost and delivers the strongest hedging effectiveness in the full sample. However, its effectiveness deteriorates during oil-specific supply shocks. Natural gas and coal display low correlations with energy stock indices, making them the most cost-effective hedges. Regime-based hedging effectiveness analysis reveals that natural gas is countercyclical, strengthening precisely when oil-based hedges weaken. Coal hedging is highly regime-dependent, with its viability contingent on a country’s energy structure and the source of market stress. The findings highlight the need for adaptive, regime-sensitive hedging strategies.
Abdel-Hafez et al. (Thu,) studied this question.