Oil Market Uncertainty and Financial Stability in Energy-Dependent Europe
ECONOMICS-THE OPEN ACCESS OPEN-ASSESSMENT E-JOURNAL, vol.20, no.1, 2026 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 20 Issue: 1
- Publication Date: 2026
- Doi Number: 10.1515/econ-2025-0208
- Journal Name: ECONOMICS-THE OPEN ACCESS OPEN-ASSESSMENT E-JOURNAL
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, EconLit, Directory of Open Access Journals, Business Source Ultimate (EBSCO)
- Bursa Uludag University Affiliated: Yes
Abstract
This study examines how oil market uncertainty influences stock market integration among four major energy-dependent European economies (France, Germany, Italy, and Spain). Oil uncertainty is proxied by the CBOE Crude Oil Volatility Index (OVX), a forward-looking implied volatility measure. Using weekly data from May 2007 to December 2025, the analysis employs univariate GARCH-X models to assess the direct effects of uncertainty on individual markets, a multivariate DCC-GARCH framework to capture time-varying correlations, and ARDL models to investigate short-run transmission mechanisms. The results indicate that oil uncertainty exerts a statistically significant negative effect on all markets and strengthens cross-market integration during periods of heightened uncertainty. However, this effect is not persistent. Evidence suggests a two-stage dynamic in which initial uncertainty shocks are associated with herding-like behavior and financial contagion, followed by portfolio rebalancing and partial market decoupling. The findings highlight the non-linear and time-varying nature of financial integration under energy-related uncertainty and offer important implications for portfolio diversification, risk management, and energy-dependent economies. Furthermore, rolling-window estimates and structural break tests reveal that this integration dynamic is highly regime-dependent, intensifying notably during major global crises. The robustness of these behavioral mechanisms is confirmed using Brent crude oil realized volatility.