In the post-financial crisis era, profound changes have occurred in the international energy market. One of the symbolic features is energy financialization. Energy financialization refers to the financial behavior of energy prices and the integration of energy and financial markets considering the increasing innovation of energy-oriented products in the financial market (Zhang Citation2018). Under the background of energy financialization, market uncertainty caused by the reshaping of global energy patterns has greatly increased the possibility of systemic risk in the energy market (Ji, Geng, and Tiwari Citation2018b; Ji et al. Citation2018a; Kerste et al. Citation2015; Reboredo Citation2015). The enhancement of the financialization attribute in the energy market significantly increases the risk contagion effect between this market and financial markets. It shows a strong consistent risk change law, especially when facing exogenous shocks (such as financial crises) (Ji et al. Citation2018c; Ma et al. Citation2019a; Zhang Citation2017). Energy financialization also provides new research ideas and directions for the study of price behavior, risk contagion mechanisms and risk management in the energy market. The price behavior characteristics of energy financialization in the energy market mainly manifest through four aspects: volatility (Ma, Ji, and Pan Citation2019b; Zavadska, Morales, and Coughlan Citation2018), uncertainty (Agbeyegbe Citation2015; Liu, Ji, and Fan Citation2017), complexity (Zhang, Ji, and Kutan Citation2019) and infectivity (Ji, Liu, and Fan Citation2019a; Mahadeo, Heinlein, and Legrenzi Citation2019).
The volatility mechanism of the energy market is much complex, and uncertainties are elevated. According to the traditional theory of supply and demand, the supply and demand in the international oil market has been in a weak equilibrium for the past 10 years. The gap between supply and demand cannot fully explain the increasing price fluctuation trend. For example, the ‘roller coaster’ surge in oil prices in 2008 is considered to be the result of the widespread involvement of international financial capital in energy futures markets (Creti and Nguyen Citation2015). Games between new and old energy forces, the American shale gas revolution and disputes with Russia will all affect the reorganization of the energy market and cause sharp price fluctuations (Behar and Ritz Citation2017; Caporin and Fontini Citation2017; Cooper, Stamford, and Azapagic Citation2018). Energy financialization has become an inevitable trend, which will lead to the traditional commodity attributes (supply-demand relationship) that affect changes to energy risk no longer playing a leading role, and the characteristics of financialization will give new uncertainty and heterogeneity to market risk.
Market uncertainty and news factors have become new drivers of energy prices. Both the rapid response of investors to external information and the dynamic adjustment of market expectations increase the sensitivity of investors to uncertain information in the market (Ji, Li, and Sun Citation2019b). Implicit volatility information within the market and various macroeconomic policy uncertainties outside the market have become new drivers of market trends (Antonakakis, Chatziantoniou, and Filis Citation2014; Liu, Ji, and Fan Citation2017; Wei et al. Citation2017). The development of web data provides a channel that can rapidly link information factors, such as policy release, to the transmission of market price information, thus leading to the spread of market risk at a faster level and a broader scale (Ji and Guo Citation2015). The analysis of market uncertainty and market sentiment has become a new field of energy finance research (Ji, Li, and Sun Citation2019b; Ma, Ji, and Pan Citation2019b).
The degree of integration between energy and financial markets is further deepening. Energy prices are showing more financial and geopolitical attributes than mere commodity attributes. Energy price volatility is not only affected by internal factors in the market, but also by the inflow of external information at different levels. In particular, financial investment portfolios around the world promote the global flow of capital (Chen and Xiong Citation2014). The energy market has become an indispensable part of the financial system. The information transmission relationship between the energy and financial markets is more diversified and complicated, and these markets are also beginning to feel the impacts of systemic risks and financial contagions (Algieri and Leccadito Citation2017; Ji et al. Citation2018d; Luo and Ji Citation2018; Maghyereh, Awartani, and Bouri Citation2016; Zhang Citation2017).
The boundaries of the energy market are blurring, and the behaviour and risk characteristics of energy prices need to be redefined, which provides a new research direction for the development of energy finance theory. With this background, the China Energy Finance Network (CEFN, www.cnefn.com) was established in 2017. Its purpose is to establish a platform for Chinese scholars dedicated to the research of energy finance and foster worldwide conversations. In 2018, CEFN, in conjunction with the Institutes of Science and Development, Chinese Academy of Sciences, Chinese Society of Optimization, Overall Planning and Economical Mathematics, and Southwestern University of Finance and Economics, organized a two-day conference on energy finance titled: Frontiers and future development in Beijing, China.
The conference provided a valuable forum for practitioners, policymakers and academics to discuss and critically analyze major issues and challenges in the area of energy finance. The conference attracted more than 180 participants from fifteen countries and selected 108 peer review submissions to set up 18 sessions covering broad energy topics, such as corporate finance, green finance, oil and financial markets, energy risk management, carbon markets, energy derivative markets, etc. Through a series of review processes from our scientific committee recommendations, double-blind peer review and editor-in-chief decisions, six papers were finally accepted. Their contributions to new developments in energy finance are summarized in the following section.
1. Summary of the Special Issue Papers
In the first paper entitled “Dynamic spillover effect between oil prices and economic policy uncertainty in the BRIC countries: A wavelet-based approach’, Xiuwen Chen, Xiaolei Sun and Jun Wang combine wavelet analysis and the BEKK-GARCH method to investigate the multiscale relationship between oil prices and economic policy uncertainty (EPU) in BRICS countries. They find that the spillover effects between oil prices and EPU are considerably different from both the frequency domain and the resources attribute perspective.
In the second paper entitled ‘Interaction between oil price and investor sentiment: nonlinear causality, time-varying influence and asymmetric effect’, Zhifang He, Fangzhao Zhou, Xiaohua Xia, Fenghua Wen and Yiyuan Huang contribute to the research on the relationship between oil prices and investor sentiment. Their approach is different from the existing literature, which uses market-wide sentiment. They choose to alternatively adopt individual investor sentiment and disclose its nonlinear and dynamic relationship with oil prices by using various econometrical models. They conclude that oil prices have negative impacts on investor sentiment, and these impacts are asymmetrical.
Third paper entitled ‘Inferring energy stock returns based on financial indicators from the network perspective’, by Xian Xi, Xiangyun Gao, Qing Guan, Nairong Liu, Sida Feng, Xueyong Liu and Pengl, construct relational networks of energy stock by using firm-level financial indicators. By calculating several network structural parameters, they show that these parameters can effectively explain the changes in stock returns, which may provide some new evidence on financial contagion.
The next paper entitled ‘Measurement of the price distortion degree for exhaustible energy resources in China: a discount rate perspective’ by Keyi Ju, Qunwei Wang, Lifan Liu and Dequn Zhou discuss price distortion on various fossil energy using the marginal opportunity cost pricing approach considering the different discount rates in China. They compare the distortion degrees of crude oil, coal and natural gas, and they found that crude oil has the highest distortion degree. They also find that the discount rate has a negative impact on the degree of distortion.
In the fifth paper entitled ‘The impacts of an energy price decline associated with a carbon tax on the energy-economy-environment system in China’, Zhengquan Guo, Xingping Zhang, Daojuan Wang and Xiaonan Zhao investigate the different impacts of energy price shocks and a carbon tax by constructing a computable general equilibrium model. They find that the decrease in fossil energy prices can indeed increase carbon emissions by increasing energy demand; however, a carbon tax can offset the impact.
In the last paper entitled ‘Stranded coal power assets in China: A case study of Jilin province’, Jiahai Yuan, Xiaoxuan Guo, Weirong Zhang, Jinghong Zhou and Chengju Qin contribute to stranded assets analysis by using provincial data on coal-fired power plants. They assess the value of stranded assets under the different scenarios by estimating the excess coal power capacity in 2020, and discuss related policy implications on power market reforms.
2. Remarks and Outlook
Energy finance is a new and fast-developing interdisciplinary research field, one that needs continuous and in-depth exploration and the proposal of innovative theories. The Annual International Conference on Energy Finance (ICEF), organized by the China Energy Finance Network, will continue to provide a communication platform for breakthroughs in energy finance theory and scientific exploration frontiers. The upcoming ICEF 2020 will be held in Tsingtao, China, more information is available at www.cnefn.com.
Acknowledgments
We also thank Ali Kutan, the editor of Emerging Markets Finance and Trade, the reviewers and our authors who collectively contributed to and supported this special issue.
Additional information
Funding
References
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