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Cryptocurrency Bubble on the Systemic Risk in Global Energy Companies

Abstract:
Financialization has brought new challenges to the international energy markets, making energy systemic risk a more complicated issue. One of the important features is the development of cryptocurrency, which has become a critical part of the global financial markets. As a consequence, the rise and fall of cryptocurrency can have nonnegligible impacts on the systemic risks in the international energy sector. This paper empirically tests this hypothesis using the equity data of the top 100 energy companies from 2014 to 2021. Specifically, we explore the extreme shocks of cryptocurrency using multiple bubble tests, and then we test to what extent bubbles in cryptocurrency markets can affect systemic risk in the energy sector. Our empirical results show that the formation of cryptocurrency bubbles, especially when the bubbles burst, significantly increases systemic risks in the energy sector. This effect retains the same in the recent COVID-19 pandemic period. In addition, oil and gas companies play an essential channel in the risk spillover from cryptocurrency markets to the international energy markets.

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Keywords: Energy companies, Cryptocurrency, Bubbles, Systemic risks, CoVaR

DOI: 10.5547/01956574.43.SI1.qiji

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Published in Volume 43, Special issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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