Extant linkages between Shanghai crude oil and US energy futures: Insights from spillovers of higher-order moments

Abstract

This study is epicentral to analyzing the impact of futures volatility on portfolio and risk management, as extant literature indicates the challenges of using economic variables that fall short of forecasting volatility beyond lagged values. Further, higher moments may be better adaptive to signaling distress during market upheavals. This paper sources data from Bloomberg from March 26, 2018–April 28, 2023, to examine the dynamic spillovers of higher moments among Shanghai International Energy Exchange and US energy futures contracts by constructing realized skewness and kurtosis. Using nonlinear techniques of mutual information and time-varying vector autoregression (TVP-VAR), we show that realized skewness and kurtosis offer significant information on spillover transmission between the two futures markets, primarily through the crises of COVID-19 and the Russia and Ukraine war. Further, we identify that the risks embedded in these future contracts have increased significantly. Our results have important implications for policymakers, investors, and risk managers.