IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v4y2024i2d10.1007_s43546-023-00617-y.html
   My bibliography  Save this article

The interconnectivity between green stocks, oil prices, and uncertainty surrounding economic policy: indications from the United States

Author

Listed:
  • Abiodun Moses Adetokunbo

    (Augustine University)

  • Afe Success Mevhare

    (Augustine University)

Abstract

This paper investigates the interconnectivity among economic policy uncertainty, green stocks, and oil prices in the United States, an analysis was carried out utilizing a Time-Varying Parameter Vector Autoregression model with monthly data covering the period of 2006 to 2021. The literature review synthesizes three strands of relationships: oil prices and green stocks, EPU and green stocks, and oil price and economic policy uncertainty, revealing a gap in existing research that this study aims to fill by simultaneously examining all three variables. The results accentuate the interconnectedness of these variables, emphasizing green stocks as a crucial conduit for economic disturbances. Economic policy uncertainty emerges as a primary driver, meaningfully affecting renewable energy stock performance. Global economic policy uncertainty, when coupled with Brent oil prices, shows a stronger ripple effect on green stocks. The study shows directional spillovers between US and global EPU, with green stocks, WTI oil prices, and US EPU acting as transmitters and US GDP and inflation rate as receivers of shocks. Green stocks exert a higher spillover effect on oil prices than vice versa, highlighting the importance of sustainable investments. Recommendations advocate for maintaining investments in renewable stocks and urge policymakers to formulate transparent policies to foster the green investment sector. Greater intelligibility in policy decisions is recommended to lessen possible adverse effects of economic policy uncertainty. The study emphasizes the necessity of factoring in global economic trends when formulating energy-related policies, emphasizing the importance of monitoring and integrating global economic dynamics into decision-making processes.

Suggested Citation

  • Abiodun Moses Adetokunbo & Afe Success Mevhare, 2024. "The interconnectivity between green stocks, oil prices, and uncertainty surrounding economic policy: indications from the United States," SN Business & Economics, Springer, vol. 4(2), pages 1-26, February.
    • Handle: RePEc:spr:snbeco:v:4:y:2024:i:2:d:10.1007_s43546-023-00617-y
    DOI: 10.1007/s43546-023-00617-y
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-023-00617-y
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-023-00617-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    2. Degiannakis, Stavros & Filis, George & Panagiotakopoulou, Sofia, 2018. "Oil price shocks and uncertainty: How stable is their relationship over time?," Economic Modelling, Elsevier, vol. 72(C), pages 42-53.
    3. Al-Thaqeb, Saud Asaad & Algharabali, Barrak Ghanim, 2019. "Economic policy uncertainty: A literature review," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    4. Lundgren, Amanda Ivarsson & Milicevic, Adriana & Uddin, Gazi Salah & Kang, Sang Hoon, 2018. "Connectedness network and dependence structure mechanism in green investments," Energy Economics, Elsevier, vol. 72(C), pages 145-153.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Kang, Wensheng & Ratti, Ronald A. & Yoon, Kyung Hwan, 2015. "The impact of oil price shocks on the stock market return and volatility relationship," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 41-54.
    7. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    8. Xiaohui Zhao, 2020. "Do the stock returns of clean energy corporations respond to oil price shocks and policy uncertainty?," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-16, December.
    9. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    10. Koop, Gary & Korobilis, Dimitris, 2014. "A new index of financial conditions," European Economic Review, Elsevier, vol. 71(C), pages 101-116.
    11. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    12. Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, vol. 34(1), pages 248-255.
    13. Alex YiHou Huang & Chiao-Ming Cheng & Wen-Cheng Hu & Chih-Chun Chen, 2011. "Relationship between Crude Oil Prices and Stock Prices of Alternative Energy Companies with Recent Evidence," Economics Bulletin, AccessEcon, vol. 31(3), pages 2434-2443.
    14. Xia, Yufei & Shi, Zhengxu & Du, Xiaoying & Niu, Mengyi & Cai, Rongjiang, 2023. "Can green assets hedge against economic policy uncertainty? Evidence from China with portfolio implications," Finance Research Letters, Elsevier, vol. 55(PA).
    15. Yumiao Wang & Dongmin Kong, 2022. "Economic Policy Uncertainty and the Energy Stock Market - Evidence From China," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 3(1), pages 1-4.
    16. Ferrer, Román & Shahzad, Syed Jawad Hussain & López, Raquel & Jareño, Francisco, 2018. "Time and frequency dynamics of connectedness between renewable energy stocks and crude oil prices," Energy Economics, Elsevier, vol. 76(C), pages 1-20.
    17. Husain, Shaiara & Sohag, Kazi & Wu, Yanrui, 2022. "The response of green energy and technology investment to climate policy uncertainty: An application of twin transitions strategy," Technology in Society, Elsevier, vol. 71(C).
    18. 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.
    19. repec:eme:jefasp:jefas-04-2019-0053 is not listed on IDEAS
    20. Doğan, Buhari & Trabelsi, Nader & Tiwari, Aviral Kumar & Ghosh, Sudeshna, 2023. "Dynamic dependence and causality between crude oil, green bonds, commodities, geopolitical risks, and policy uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 36-62.
    21. Antonakakis, Nikolaos & Gabauer, David & Gupta, Rangan & Plakandaras, Vasilios, 2018. "Dynamic connectedness of uncertainty across developed economies: A time-varying approach," Economics Letters, Elsevier, vol. 166(C), pages 63-75.
    22. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    23. Antonakakis, Nikolaos & Gabauer, David, 2017. "Refined Measures of Dynamic Connectedness based on TVP-VAR," MPRA Paper 78282, University Library of Munich, Germany.
    24. Lin, Boqiang & Bai, Rui, 2021. "Oil prices and economic policy uncertainty: Evidence from global, oil importers, and exporters’ perspective," Research in International Business and Finance, Elsevier, vol. 56(C).
    25. Gaoke Liao & Peng Hou & Xiaoyan Shen & Khaldoon Albitar, 2021. "The impact of economic policy uncertainty on stock returns: The role of corporate environmental responsibility engagement," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4386-4392, July.
    26. Rajat Kumar Soni & Tanuj Nandan & Niti Nandini Chatnani, 2023. "Dynamic association of economic policy uncertainty with oil, stock and gold: a wavelet-based approach," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(7), pages 1501-1525, January.
    27. Phan, Dinh Hoang Bach & Iyke, Bernard Njindan & Sharma, Susan Sunila & Affandi, Yoga, 2021. "Economic policy uncertainty and financial stability–Is there a relation?," Economic Modelling, Elsevier, vol. 94(C), pages 1018-1029.
    28. Yang, Tianle & Zhou, Fangxing & Du, Min & Du, Qunyang & Zhou, Shirong, 2023. "Fluctuation in the global oil market, stock market volatility, and economic policy uncertainty: A study of the US and China," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 377-387.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ghaemi Asl, Mahdi & Adekoya, Oluwasegun Babatunde & Rashidi, Muhammad Mahdi & Ghasemi Doudkanlou, Mohammad & Dolatabadi, Ali, 2022. "Forecast of Bayesian-based dynamic connectedness between oil market and Islamic stock indices of Islamic oil-exporting countries: Application of the cascade-forward backpropagation network," Resources Policy, Elsevier, vol. 77(C).
    2. Gabauer, David & Gupta, Rangan, 2020. "Spillovers across macroeconomic, financial and real estate uncertainties: A time-varying approach," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 167-173.
    3. Dai, Zhifeng & Zhu, Haoyang & Zhang, Xinhua, 2022. "Dynamic spillover effects and portfolio strategies between crude oil, gold and Chinese stock markets related to new energy vehicle," Energy Economics, Elsevier, vol. 109(C).
    4. Umar, Muhammad & Farid, Saqib & Naeem, Muhammad Abubakr, 2022. "Time-frequency connectedness among clean-energy stocks and fossil fuel markets: Comparison between financial, oil and pandemic crisis," Energy, Elsevier, vol. 240(C).
    5. Apostolakis, George N. & Floros, Christos & Gkillas, Konstantinos & Wohar, Mark, 2021. "Financial stress, economic policy uncertainty, and oil price uncertainty," Energy Economics, Elsevier, vol. 104(C).
    6. Liu, Peipei & Huang, Wei-Qiang, 2024. "Spatial analysis of sovereign risk from the perspective of EPU spillovers," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 427-443.
    7. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2017. "Oil shocks and stock markets: Dynamic connectedness under the prism of recent geopolitical and economic unrest," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 1-26.
    8. Feng, Huiqun & Zhang, Jun & Guo, Na, 2023. "Time-varying linkages between energy and stock markets: Dynamic spillovers and driving factors," International Review of Financial Analysis, Elsevier, vol. 89(C).
    9. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    10. Chatziantoniou, Ioannis & Gabauer, David & Stenfors, Alexis, 2020. "From CIP-deviations to a market for risk premia: A dynamic investigation of cross-currency basis swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).
    11. David Gabauer & Sowmya Subramaniam & Rangan Gupta, 2022. "On the transmission mechanism of Asia‐Pacific yield curve characteristics," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 473-488, January.
    12. Antonakakis, Nikolaos & Gabauer, David & Gupta, Rangan, 2019. "Greek economic policy uncertainty: Does it matter for Europe? Evidence from a dynamic connectedness decomposition approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    13. Antonakakis, Nikolaos & Gabauer, David & Gupta, Rangan, 2019. "International monetary policy spillovers: Evidence from a time-varying parameter vector autoregression," International Review of Financial Analysis, Elsevier, vol. 65(C).
    14. Nikolaos Antonakakis & David Gabauer & Rangan Gupta, 2018. "Greek Economic Policy Uncertainty: Does it Matter for the European Union?," Working Papers 201840, University of Pretoria, Department of Economics.
    15. Zhang, Yulian & Hamori, Shigeyuki, 2022. "A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 182-203.
    16. Li, Jingpeng & Umar, Muhammad & Huo, Jiale, 2023. "The spillover effect between Chinese crude oil futures market and Chinese green energy stock market," Energy Economics, Elsevier, vol. 119(C).
    17. Matteo Foglia & Eliana Angelini, 2020. "Volatility Connectedness between Clean Energy Firms and Crude Oil in the COVID-19 Era," Sustainability, MDPI, vol. 12(23), pages 1-22, November.
    18. Ioannis Chatziantoniou & David Gabauer & Hardik A. Marfatia, 2022. "Dynamic connectedness and spillovers across sectors: Evidence from the Indian stock market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(3), pages 283-300, July.
    19. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2021. "Volatility spillovers during market supply shocks: The case of negative oil prices," Resources Policy, Elsevier, vol. 74(C).
    20. Al-Nassar, Nassar S. & Assaf, Rima & Chaibi, Anis & Makram, Beljid, 2024. "The nexus between mineral, renewable commodities, and regional stock sectors during health and military crises," Resources Policy, Elsevier, vol. 96(C).

    More about this item

    Keywords

    Green stocks; Economic policy uncertainty; Oil price; TVP–VAR;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:snbeco:v:4:y:2024:i:2:d:10.1007_s43546-023-00617-y. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.