Connectivity and spillover during crises: Highlighting the prominent and growing role of green energy

Abstract

How influential are green energy instruments? We examine how green- and carbon-energy assets differ regarding transmitting and receiving shocks between normal versus crises periods. Crises include the global financial crisis and Euro debt crisis, two waves of COVID-19, and the ongoing Russia-Ukrainian war. Our empirical illustration is based on volatility impulse function (VIRF) for dynamic conditional correlation–generalised autoregressive conditional heteroskedasticity (DCC-GARCH) method using daily data from January 03, 2007–March 31, 2023, of several green and brown energy instruments and market and energy controls, we evidence asymmetric connectedness that increases during crises. For specific green instruments, volatility transmissions can be transmitting or receiving. However, green instruments stand out overall as prominent transmitters, while brown energy instruments are prominent receivers. Results are consistent with green energy vehicles impacted by macroeconomic and market states and reflecting this to investors. Results are also consistent with green and brown interconnectivity. Further network analysis provides robustness to our study results and suggests this role is evolving. The study results are significant for policy intervention during the transition to alternative energy sectors and for risk and portfolio management implications.