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Directional predictability and time-frequency spillovers among clean energy sectors and oil price uncertainty

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  • Urom, Christian
  • Mzoughi, Hela
  • Ndubuisi, Gideon
  • Guesmi, Khaled

Abstract

This paper analyzes the dependence among clean energy sectors and oil price uncertainty using the NASDAQ OMX Green Economy Index for the Building, Economy, Edge, Financial, Technology and Transport sectors in the United States. First, we use the wavelet and Cross-Quantilogram (CQ) techniques to examine the directional predictability from oil price uncertainty to these clean energy sectors across different investment horizons and market conditions. Secondly, we use the Time-Varying Parameter (TVP-VAR) model with stochastic volatility to characterize the level of spillovers among the clean energy sectors and oil market uncertainty under different investment horizons. Results from the CQ demonstrate strong evidence of heterogeneous dependence and predictability from oil market uncertainty to clean energy sectors across different market conditions and investment horizons, pointing out the importance of active portfolio management. Also, we find that the level of shock spillovers is weak in the short-term but strengthens towards the intermediate- and long-term. In addition, there are other notable heterogeneities regarding the amount of information content for the different sectors’ and at different investment horizons from oil price uncertainty. Taken together, our results demonstrate that the direction and magnitude of the response of clean energy sectors to oil market uncertainty vary across sectors, and depend on market conditions and investment horizons. We document some crucial market conditions as well as horizon-specific implications for portfolio diversification for clean energy investors and portfolio managers.

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  • Urom, Christian & Mzoughi, Hela & Ndubuisi, Gideon & Guesmi, Khaled, 2022. "Directional predictability and time-frequency spillovers among clean energy sectors and oil price uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 326-341.
    • Handle: RePEc:eee:quaeco:v:85:y:2022:i:c:p:326-341
    DOI: 10.1016/j.qref.2022.04.005
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    Keywords

    Energy market; Stock market; Asymmetric shocks; Oil-price uncertainty;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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