Heterogeneous risk spillovers from crude oil to regional natural gas markets: the role of the shale gas revolution

This paper investigates the heterogeneous risk spillovers from crude oil to regional natural gas markets against the background of the North American shale gas revolution. The market risks are measured by the upside and downside VaR. We first confirm the existence of risk spillovers between oil and gas markets by using Granger causality in risk. Then, we employ the MVMQ-CAViaR model to reveal the tail-dependence patterns and propose the performance test to highlight the accuracy of the model for the construction of VaR. Furthermore, we construct quantile impulse-response functions and identify asymmetric features in the magnitude, duration, and direction of response by gas markets to extreme negative and positive oil price shocks. Our results show that the revolution actually affects the risk spillovers from oil to gas markets and exhibits the time-varying property. And the heterogeneous risk-transmission mechanisms depend on the regional characteristics and specific market scenarios. Finally, policy implications are discussed.