Spillovers between natural gas, gasoline, oil, and stock markets: Evidence from MENA countries

Abstract

This paper examines the dependence structure and systemic risk between WTI crude oil futures, New York Harbor gasoline futures, Henry Hub natural gas futures, and important stock markets in the MENA region, paying attention to the periods before and after the mid-2014 oil price crash. Various copula functions along with the Variational Mode Decomposition (VMD) technique and the Conditional Value at Risk (CoVaR) measure are used. The results show evidence of a negative and positive average dependence between energy (crude oil, natural gas, and gasoline) and almost all MENA stock markets before and after the oil crash in the short term. In the long term, we find a significant average dependence before the crash and an upper tail dependence after the crash between crude oil and almost all the MENA stock markets. Natural gas exhibits a positive and upper tail dependence with almost all MENA markets before the crash and an average dependence after the crash. For gasoline, the results however are mixed for the average and tail dependence before and after the crash. Furthermore, the dependence is higher in the long than the short term and after the oil crash than before it. The VaR and CoVaR values show that the expected loss of portfolios is more significant after the crash and in the long term. Finally, the stock markets of the oil-exporting MENA countries are more affected by the energy price shocks than the oil-importing MENA countries as reflected in the intensification of the dependence level and the systemic risk results.