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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. (2026) studied this question.