Energy Finance: Background, Concept, and Recent Developments

Abstract

Energy is a critical input in modern economic systems. Its influence on various parts of economic performance has been widely investigated. Traditionally, energy prices, such as oil prices, are considered to be determined by supply and demand in international markets. Hamilton (2009), for example, suggests that increasing demand in emerging economies (e.g., China), failure to increase oil supply, and low price elasticity are the main reasons for price increases before 2008.Fundamental factors were important in understanding oil price changes prior to 2008. They largely failed to explain what happened afterward. The extremely volatile price dynamics cannot simply be due to changes in the fundamentals. Fattouh and Mahadeva (2012) provide an alternative explanation based on the notion of oil financialization-which has been explored intensively in the recent literature (see, e.g., Creti and Nguyen 2015; Zhang 2017; Zhang and Ji 2018). A large number of studies also investigate issues such as the relationship between energy price shocks and financial markets, financing and investment decisions made by energy firms, and carbon finance and green finance. These studies have naturally coalesced into a common research theme-energy finance, a subject of growing interest among academic researchers.In addition, since the 2008 global financial crisis, international energy markets have become more closely linked with financial markets, and energy prices have exhibited more financial characteristics. As a result, it is critical to further study energy market issues from a financial perspective. Indeed, the strategic importance of energy and climate change gives financial issues a unique relevance for both academia and policy makers, which inevitably leads to a further separation of energy finance from general financial research.The concept of energy finance, however, is vague and has no clear definition, which may create constraints on its further development. This special issue therefore aims to provide a platform for discussions on the most recent developments in energy finance and contribute to clarification of the concept of energy finance. What Is Energy Finance?Energy finance is inherently interdisciplinary. It starts with exploring the linkages between energy markets and financial markets but then requires us to look at energy products/markets from a financial perspective. To further clarify this concept, we elaborate on the following six broad themes based on a brief review of the relevant literature, though the concept is not limited to them. Energy and Financial MarketsChen, Roll, and Ross (1986) are perhaps the first to investigate the role of oil price risk in stock markets, though their findings do not support a separate role for oil. Jones and Kaul (1996) investigate the reaction of international stock markets to oil shocks in a number of developed economies and

How COVID-19 drives connectedness among commodity and financial markets: Evidence from TVP-VAR and causality-in-quantiles techniques

“…The direct link relates to oil price shocks influencing the current and future cash flows, while the indirect link relates to the influence oil shocks have on interest rates that is often used to influence future cash flows (see Arouri et al, 2011a ; Jones and Kaul, 1996 ). 1 In another way, the exclusive relationship between stock and oil markets has also been recently modelled through financialization 2 (see Zhang, 2017 , 2018 ; Peng et al, 2018 ). Thus, the increased financialization process has also strengthened the inter-connectedness between oil and stock markets (see Mensi et al, 2017 ).…”

Optimization Of Financing Sources For Russian Energy Corporations In The Modern Economy

“…A study of the development of various areas of the energy industry and its segments is relevant in theory and practice. Theoretical studies are devoted to the analysis of various aspects of the industry: pricing, the response of financial markets, the development of concepts, models, (Zhang, 2018), models (Creti & Nguyen, 2015), investment conditions (Cunico, Flores, & Vecchietti, 2017), problems arising both in developed ones, so in emerging economies.…”

Energy market financialization: Empirical evidence and implications from East Asian LNG markets

“…Along the increasing trend of financialization of the international energy markets since the 2008 (Ji and Zhang, 2018;Zhang, 2018Zhang, , 2017, natural gas market is not exceptional. Natural gas market, although fragmented so far, is increasingly integrated due to the move toward gason-gas competition pricing that requires gas hubs to facilitate competition (EIA, 2017;IEA, 2013) and financial markets to generate the price signals (Dayong Zhang et al, 2018).…”