Contagion, Volatility Persistence, and Volatility Spill-Overs: The Case of Energy Markets During the European Financial Crisis

Abstract

The aim of this paper is to investigate if, and to what extent, events from the three financially troubled EU markets (Greece, Ireland, and Portugal) affected energy prices during the recent EU financial crisis. More specifically,

(i) we test for contagion effects from bond markets on energy/commodity prices,

(ii) we examine whether the nature of energy price volatility is affected, and

(iii) we investigate whether bond volatility from the financially distressed EU markets spills over, subsequently affecting energy/commodity return volatility.

Our results indicate the existence of significant contagion effects from the bond markets of the three EU countries that received bailout packages on energy/commodity prices and significant changes in the nature of energy/commodity volatility during the EU financial crisis. We also report the existence of significant volatility spill-over effects.

Keywords: Energy Markets, Contagion, Volatility Spill-Overs, European Crisis

JEL Classification: G12