Panel GARCH-Copula Modeling: Evidence From Energy Market Response in Egypt and Jordan to the October 2023 Israel-Hamas Conflict

Author's Department

Management Department

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https://doi.org/10.1002/crq.70005

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Mina Sami Wael Abdallah

Document Type

Research Article

Publication Title

Conflict Resolution Quarterly

Publication Date

1-1-2025

doi

10.1002/crq.70005

Abstract

The primary aim of this paper is to examine the relationship between the October 2023 Israel-Hamas war and the volatility in the energy sector of frontier countries. The study uses a micro-dataset covering the firms operating in the energy sector within the border regions of Israel and Palestine. The empirical methodology initially employs a Panel GARCH model to analyze the energy sector's response to conflict. This analysis is followed by a Copula analysis, mainly Empirical and Gumbel Copulas, relevant to modeling extreme events. The study reveals two main findings. (1) Geopolitical shocks in the Middle East have immediate and persistent spillovers across frontier markets. In particular, the Israel-Hamas conflict has amplified the volatility of firms' market values in frontier countries. Unlike previous shocks (e.g., pandemic, Russia-Ukraine war), this conflict shows limited alternative energy supply routes and market-making mechanisms in these frontier countries. (2) The copula results reveal robust tail dependence ((Formula presented.) > 1) in the market value of the energy sector. It captures an asymmetric response of the market to conflict escalation versus de-escalation. This finding indicates that the belligerence of the conflict exerts a substantial impact on the market value of companies operating in frontier countries and the energy sector as a whole.

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