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Asymmetric dependency among US national financial conditions and clean energy markets

Author

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  • Zeng, Hongjun
  • Abedin, Mohammad Zoynul
  • Wu, Ran
  • Ahmed, Abdullahi D.

Abstract

This paper examines the relationship between the US National Financial Conditions Index (NFCI) and the clean energy industry using quantile and frequency connectedness, cross-quantile, and wavelet quantile correlation (WQC) techniques. Results reveal (a) a stronger dependence between the NFCI and clean energy under bullish market states. Moreover, the total connectedness between the NFCI and clean energy mostly exhibits time-varying characteristics. In particular, clean energy has a greater spillover effect than the NFCI. (b) Dynamic frequency total connectedness at extreme quantiles provided a more comprehensive view of structural shocks in financial markets, and major crises, such as COVID-19, significantly amplified this connectedness. Overall, the WilderHill Clean Energy Index and the NASDAQ OMX Renewable Energy Index demonstrate substantial potential for hedging financial conditions. (c) The cross-quantile correlation results revealed an asymmetric dependency, demonstrating a sustained significant positive relationship between the NFCI and clean energy index (CEI) across the relative higher quantiles and middle quantiles. The WQC showed that the NFCI and specific CEIs tended to exhibit the strongest positive correlations in nonextreme quantiles and lower frequencies. These results can be of considerable interest to various financial market participants.

Suggested Citation

  • Zeng, Hongjun & Abedin, Mohammad Zoynul & Wu, Ran & Ahmed, Abdullahi D., 2024. "Asymmetric dependency among US national financial conditions and clean energy markets," Global Finance Journal, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:glofin:v:63:y:2024:i:c:s1044028324001182
    DOI: 10.1016/j.gfj.2024.101046
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    Keywords

    US national financial condition; Clean energy markets; Quantile connectedness; Frequency connectedness; Cross-quantilogram; Wavelet quantile correlation;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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