Complex risk contagions among large international energy firms: A multi-layer network analysis

• Published in: Energy economics 2022-10, Vol.114, p.106271, Article 106271
• Main Authors: Wu, Fei, Xiao, Xuanqi, Zhou, Xinyu, Zhang, Dayong, Ji, Qiang
• Format: Article
• Language: English
• Subjects: Energy firms; Multi-layer network; Risk contagions; Time-varying
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2022.106271

This paper introduces a multi-layer network approach to explore risk contagions in a sample of top energy firms in the world. Large energy companies play a very important role in the international energy market. Mapping their responses to different types of shocks provides profound implications for understanding how international energy markets work, and could also create significant value for investors in the energy sector. Specifically, we distinguish three layers of risk spillovers, covering return correlations as well as upper tail and lower tail dependence. Through a multi-layer network setting, we identify both within layer linkages and inter-layer linkages. In addition, the dynamic evolution of this network structure is explored through a rolling-window approach, which enables us to evaluate the level of structural stability. Our empirical results unveil three regional clusters and a dynamic power shifting pattern in the international energy sector. Overall, this multi-layer network approach allows us to detect complex risk contagion patterns in financial markets and could be generalized to other scenarios. •A multi-layer network approach is used to explore complex risk contagions in a sample of top energy firms.•Three layers of risk networks are constructed to reflect normal and extreme market conditions.•Dynamic evolution of the network structure is explored via a rolling-windows approach.•Regional clusters exist and the European and American firms play important roles in the international energy markets.