This paper aims to investigate how renewable energy index interacts and interrelates with developed and emerging stock markets and what the effect of uncertainties surrounding the pandemic and economic policy is on their connectedness from December 29, 2000, to March 23, 2022.
The Diebold and Yilmaz (2012, 2014) methodology is used to measure connectedness from three perspectives: total connectedness, total directional connectedness and pairwise directional connectedness. Furthermore, the authors examine the effects of economic, pandemic and financial uncertainty indices on this connectedness.
The authors find significant evidence that the volatility connectedness changes over time and reaches peak during global financial crisis and the onset of the COVID 19 crisis. In addition, the connectedness index has consistently reported that advanced equity markets are more connected with clean energy stocks than that in emerging economies. Moreover, the specific uncertainty indices all have a positive impact on the connectedness except the EPU effect in emerging countries.
This paper takes an initial attempt to provide a clear-cut investigation about the connectedness between renewable energy index and different stock markets with emphasis on the significant crisis periods. These insights can be used by investors in renewable energy to inform diversification benefits at different investment horizons and policymakers to create a stable and predictable renewable energy regulatory framework.
