Dynamic default‐risk spillover of global energy firms: Evidence from five subsectors

Abstract We examine the asymmetric default‐risk spillovers of leading global energy firms across five key sectors, including integrated oil and gas, oil and gas refining and marketing, electric utilities, gas utilities, and coal, covering the period from April 2008 to June 2021. As earlier research does not utilize high‐frequency DTD data, it does not document the temporal variations in connectedness and risk transmission across different energy sectors. To address this gap, we utilize a unique dataset of daily DTD values, which enables us to uncover dynamic and evolving spillover patterns that were previously undetectable. We employ time‐varying parameter vector autoregressions for our analysis. Our results reveal significant sectoral differences in risk transmission, with the coal sector showing the highest total connectedness due to shared vulnerabilities, and the gas sector exhibiting the lowest connectedness, indicating greater resilience to systemic shocks. Additionally, we identify net transmitters and receivers of global shocks, providing crucial insights into the directional dissemination of risks. Consequently, we contribute to the understanding of systemic risk and contagion dynamics within the energy sector, an area that has been relatively underexplored in financial stability research. These findings offer valuable implications for investors and policymakers.