Price and income elasticity of natural gas demand in Europe and the effects of lockdowns due to Covid-19

We analyse a panel of 25 European-countries to provide novel estimates of monthly own-price, cross-price, and income elasticities of natural-gas-demand from 2005 to 2020. We find that: first, there is an European Standard Behaviour (ESB) with a strong-seasonal component. Second, we identify three different patterns from the ESB: 1) France, Denmark and Estonia present slightly positive elasticities in the short-run and a lack of sensitivity to own-price variations in the long-run –we argue this phenomenon is due to a higher weight of heating demand-. 2) Latvia presents a lower sensitivity to own-price variations than the ESB -we argue due to the role of natural gas as a unique backup technology in the power sector-. 3) In Portugal, natural gas showed the highest own-price elasticities – we argue that natural gas is used mainly in the power sector with substitutive technologies-. Finally, we find that Covid-19-lockdowns highly impacted natural-gas-demand, confirming the “double-heating-effect”.

Brent and WTI oil prices volatility during major crises and Covid-19

We provide novel evidence of two different types of volatility-patterns of oil spot prices that are generated depending on which is the predominant trigger: a) spikes of volatility (which are highly erratic) are produced during periods of supply/demand crises of oil disruptions (such as the 1990/91 First-Gulf-War, 2001 US-terrorist attack, the oil conflict of Saudi-Arabia with the US in 2014/16 and with Russia in 2020 -together with the Covid-19 impact-);while b) periods where economic/financial/stock market crises are the predominant trigger (such as the 1997/98 Asian and 2008/09 Global-Financial Crises and the 2017/19 oil conflicts including the 2018 stock market crisis) are associated to higher volatility persistence. Our results are very relevant since oil markets in the coming months/years are very likely to have a very high degree of uncertainty, and knowledge of the type of volatility that is generated under each of the different triggers and how it affects oil markets is very relevant for investors, speculators and policy makers.

The influence of extreme events such as Brexit and Covid-19 on equity markets.

In this article first, we show that the result that the PIIGS group had the largest negative unadjusted and abnormal returns on the day following the Brexit Referendum is robust to taking into account jointly other extreme events such as the Covid-19. Second, we provide evidence that the impact of the declaration of Covid-19 to be a global pandemic by the WHO - when global markets fell by nearly 15% - had a total different reaction in the financial markets to the one following the Brexit Referendum, impacting more negatively in countries where quarantine lockdowns were announced that day (i.e. Austria, Belgium, Brazil, Canada, Italy and Spain), independently on their debt-to GDP ratio. We also show that the day after Covid-19 was declared as a global pandemic, China and Japan (countries that already implemented lockdowns in the previous months) were the only analyzed countries that did not experience any evidence of abnormal returns in their financial markets. Moreover, during the three following days, the US was the only analyzed country showing no evidence of negative abnormal returns due to the declaration of the national emergency. These results suggest that government policies must take into account and monitor specially health-related news at global level, since they can have enormous impacts on portfolio allocations on stock markets, in order to take more informed decisions.