Financial contagion from oil shocks during the pandemic: A cross-sector analysis

Financial contagion in a broad sense is a change in the links between markets during the period of exposure to external shocks. Having initially hit one market, the shock is transmitted through various channels (trading, financial, informational, etc.) to other markets. This paper addresses an underresearched issue of contagion effect in Russia resulting from oil shock during the COVID-19 pandemic. We used data on the inter-sessional return of Brent oil futures and 8 Moscow Exchange Sector Indices for the period from 1 January 2019 to 23 February 2022. We apply the method of moments, which includes four types of tests for the joint distribution of two assets returns: correlation and correcting for heteroskedasticity, coasymmetry, cokurtosis and covolatility. The shock period was identified using the sliding coefficient of variation in the return of oil futures and the MOEX Russia Index. The study confirmed the contagion of almost all sectors of the Russian economy during the acute phase of the pandemic. In this period, the transport and telecommunications industries were the most vulnerable to the oil shock, and the least vulnerable ones were metallurgy, chemistry, and energy. However, the calculation of the dynamic co-moments of returns showed that in the recovery period of the Russian economy, contagion continued - there was a change in the fundamental links between the sectors of the Russian economy and the oil market. In general, for the entire period covered by our research, the transport industry, as well as the oil and gas industry, energy and the consumer sector, were most affected. Metallurgy, the financial sector and the telecommunications industry turned out to be less sensitive to oil market shocks. Our findings can be helpful in strengthening the resilience of Russian economy to external shocks.