Volatility spillover between financial assets and transport energy

This study examines the dynamics of volatility spillover between financial assets and transport energy. Such spillovers are critical for implementing risk management strategies, supporting energy policymaking, and enabling more effective investment decisions in today's globally integrated financial-energy system. Our study includes financial assets (both non-green and green) and transport energy (fossil fuels and biofuels). We employ Time-Varying Parameter Vector Autoregressive (TVP-VAR) approaches to investigate the volatility between financial assets and transport energy from 2018 to 2023. Our findings show that: (1) most financial assets unilaterally and positively affect the volatility in transport energy, except for biodiesel; (2) long-term volatility contributes significantly to overall volatility spillover. Besides, fossil fuel shows more long-term volatility transmission, while ethanol shows more short-term volatility; (3) the level of volatility connectedness experienced an abrupt and significant spike during the COVID-19 pandemic and the Russo-Ukrainian war. The abrupt spike is much greater during the COVID-19 pandemic; (4) greater volatility spillovers occur at extreme settings (i.e., 5th and 95th percentiles). We use these findings to offer insights for policymakers and stakeholders to develop strategies that mitigate volatility risks in both financial and energy markets.