Uncertainties and extreme risk spillover in the energy markets: A time-varying copula-based CoVaR approach

In this paper, we explore the impact of uncertainties on energy prices by measuring four types of Delta Conditional Value-at-Risk (∆CoVaR) using six time-varying copulas. Three different measures of uncertainty (economic policy, financial markets and energy markets) are considered, and the magnitude and asymmetric effects of their influence are investigated. Our results suggest that there generally exists negative dependence between energy returns and changes in uncertainty. The risks of clean energy and crude oil returns are more sensitive to uncertainties in the financial and energy markets, while the impact of economic policy uncertainty is relatively weak. The upside and downside CoVaRs and ∆CoVaRs demonstrate significant asymmetric effects in response to extreme uncertainty movement. Our findings therefore have important implications for energy portfolio investment.