Identifying the volatility spillover risks between crude oil prices and China's clean energy market

Hao Nong; Yitan Guan; Yuanying Jiang; Hao Nong; Yitan Guan; Yuanying Jiang

doi:10.3934/era.2022233

Electronic Research Archive

2022, Volume 30, Issue 12: 4593-4618. doi: 10.3934/era.2022233

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Identifying the volatility spillover risks between crude oil prices and China's clean energy market

1.
College of Science, Guilin University of Technology, Guilin 541004, China
2.
Guangxi Colleges and Universities Key Laboratory of Applied Statistics, Guilin 541004, China

Received: 28 August 2022 Revised: 08 October 2022 Accepted: 09 October 2022 Published: 21 October 2022

Since the COVID-19 outbreak, the global economy has been hit hard, and the development of renewable energy and energy transitions has become a common choice for all countries. The development of clean energy firms has become a hot topic of discussion among scholars, and the relationship between the stock prices of clean energy firms and the international crude oil market has attracted more attention. In this paper, we analyze the volatility connectedness between crude oil and Chinese clean energy firms from 2016 to 2022 by building time-varying vector autoregressive models with stochastic volatility components and time-varying spillover index and dynamic conditional correlation GARCH models. The results of the shock effects analysis show that international crude oil volatility had a significant short-term positive impact on Chinese clean energy firms during the COVID-19 outbreak period. Regarding spillover analysis, firms with large total market capitalization tended to be the senders of volatility spillovers, while smaller firms were likely to be the recipients. In terms of dynamic correlation analysis, the correlation between international crude oil and each clean energy firm was found to be volatile, and the dynamic correlation coefficient tended to reach its highest point during the COVID-19 outbreak. Meanwhile, from the optimal portfolio weighting analysis, it is clear that all optimal weights of international crude oil and medium clean energy firms will increase during an epidemic outbreak, and that more assets should be invested in clean energy firms.
- clean energy,
- oil prices,
- time-varying impulse responses,
- volatility spillover risks,
- portfolios
Citation: Hao Nong, Yitan Guan, Yuanying Jiang. Identifying the volatility spillover risks between crude oil prices and China's clean energy market[J]. Electronic Research Archive, 2022, 30(12): 4593-4618. doi: 10.3934/era.2022233

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Abstract

Since the COVID-19 outbreak, the global economy has been hit hard, and the development of renewable energy and energy transitions has become a common choice for all countries. The development of clean energy firms has become a hot topic of discussion among scholars, and the relationship between the stock prices of clean energy firms and the international crude oil market has attracted more attention. In this paper, we analyze the volatility connectedness between crude oil and Chinese clean energy firms from 2016 to 2022 by building time-varying vector autoregressive models with stochastic volatility components and time-varying spillover index and dynamic conditional correlation GARCH models. The results of the shock effects analysis show that international crude oil volatility had a significant short-term positive impact on Chinese clean energy firms during the COVID-19 outbreak period. Regarding spillover analysis, firms with large total market capitalization tended to be the senders of volatility spillovers, while smaller firms were likely to be the recipients. In terms of dynamic correlation analysis, the correlation between international crude oil and each clean energy firm was found to be volatile, and the dynamic correlation coefficient tended to reach its highest point during the COVID-19 outbreak. Meanwhile, from the optimal portfolio weighting analysis, it is clear that all optimal weights of international crude oil and medium clean energy firms will increase during an epidemic outbreak, and that more assets should be invested in clean energy firms.

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