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International crude oil prices and the stock prices of clean energy and technology companies: Evidence from non-linear cointegration tests with unknown structural breaks

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  • Bondia, Ripsy
  • Ghosh, Sajal
  • Kanjilal, Kakali

Abstract

Increasing greenhouse gas emissions, exhaustibility and geo-politics induced price volatility of crude oil has magnified the importance of looking for alternative sources of energy. In this paper, we investigate the long term relationship of stock prices of alternative energy companies with oil prices in a multivariate framework. To this end, we use threshold cointegration tests, which endogenously incorporate possible regime shifts in long run relationship of underlying variables. In contrast to the findings of the previous study by Managi and Okimoto (2013), our results indicate presence of cointegration among the variables with two endogenous structural breaks. This study confirms that ignoring the presence of structural breaks in a long time series data, as has been done in previous study, can produce misleading results. In terms of causality, while the stock prices of alternative energy companies are impacted by technology stock prices, oil prices and interest rates in the short run, there is no causality running towards prices of alternative energy stock prices in the long run. The study discusses the possible reasons behind the empirical findings and concludes with a discussion on short run and long run investment opportunities for the investors.

Suggested Citation

  • Bondia, Ripsy & Ghosh, Sajal & Kanjilal, Kakali, 2016. "International crude oil prices and the stock prices of clean energy and technology companies: Evidence from non-linear cointegration tests with unknown structural breaks," Energy, Elsevier, vol. 101(C), pages 558-565.
    • Handle: RePEc:eee:energy:v:101:y:2016:i:c:p:558-565
    DOI: 10.1016/j.energy.2016.02.031
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