Time-varying co-movement analysis between COVID-19 shocks and the energy markets using the Markov Switching Dynamic Copula approach

The spread of the COVID-19 pandemic in 2020 has contributed a large impact on various economic sectors and the energy sector is no exception. In this paper, we analyze the time-varying correlation between COVID-19 shocks (positive and negative) and energy markets (natural gas, gasoil, heating oil, coal, and crude oil) in the time-varying environment. This study adds to the literature by implementing the Markov-switching dynamic copula with Student-t distribution to explore the unexpected COVID-19 pandemic shock effects on energy markets. Our results revealed that (i) there is evidence of correlation between COVID-19 shocks and all energy markets; (ii) the contributions of COVID-19 shocks on energy markets are not constant along 2020. (iii), there is evidence of a similar response of the energy markets to the positive and negative COVID-19 shocks. (C) 2021 The Authors. Published by Elsevier Ltd.