Dynamic nonlinear impacts of fossil energy on renewable energy stocks: A quantile perspective

Abstract

In the global context of advocating low carbon and environmental protection, the renewable energy market has developed rapidly. As a means of combating global climate change, renewable energy has sparked interest from private investors as a new investment opportunity. In this paper, the quantile–quantile regression (QQ) method and the quantile causality (QC) method are used to study the influence relationship between the fossil energy futures market and the renewable energy stock market returns at different periods and under different market conditions. Results show that when the market is in a normal state, the fossil energy market and the renewable energy stock market have a weak positive relationship, and the positive impact is in the order of crude oil market > natural gas market > heating oil market. While in a bear market, the influence relationship would be abnormally strengthened or even reversed, showing extreme asymmetry. Furthermore, we find that the influence of the fossil energy market on the renewable energy market shows country heterogeneity, and the impact is more significant for developed countries. Some meaningful implications can be concluded for investors and policy-makers. Firstly, both investors and policy-makers should be more alert to the impact of the petrochemical energy market on the renewable energy market. Secondly, investors should be more alert to the downside market risks and further distinguish the different impacts of the natural gas market and the heating oil market on the renewable energy market when making portfolios. Thirdly, policymakers should take some targeted measures to buffer the negative impact of the renewable energy stock market in petrochemical energy when the market is bearish.