High-dimensional CoVaR risk spillover network from oil market to global stock markets—Lessons from the Kyoto Protocol

This paper explores the impact of the Kyoto Protocol by investigating the correlation and risk spillover between the crude oil market and the stock markets of 28 countries during its two commitment periods. Besides time-varying Copula-CoVaR models, the Adaptive Lasso-VAR model with oracle properties is employed in generalized variance decomposition, and a risk connectedness network is constructed to explore risk spillovers between the stock markets of various countries when the crude oil market is at risk. The results reveal positive correlations between the crude oil market and stock markets, which become weaker in the second commitment period than in the first. The crude oil market has both upside and downside spillover effects to most stock markets during both commitment periods, and the upside risk spillover effect is stronger than the downside effect. Overall, most non-signatories of the Kyoto Protocol are net receivers of risk spillovers when the crude oil market is at risk, while most signatories are net exporters of risk spillovers.