Dynamic volatility among fossil energy, clean energy and major assets: evidence from the novel DCC-GARCH

Abstract

The objective of this paper is to assess the dynamic volatility connectedness between fossil energy, clean energy, and major assets i.e., Bonds, Bitcoin, Dollar index, Gold, and Standard and Poor's 500 from September 17, 2014 to October 11, 2022. The main motivation of the study relates to examining the dynamic volatility connectedness mentioned during periods of important events such as the recent coronavirus pandemic and the Russia–Ukraine conflict which has shown the vulnerability of economic and financial assets, energy commodities, and clean energy. The novel Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) approach is employed for the investigation of the sample period mentioned. Empirical analysis reveals that both the total and net volatility connectedness between assets is time-varying. The highest connectedness among the assets is observed with the onset of the coronavirus (COVID-19) pandemic, and it increases with some important international events, such as the Russia–Ukraine conflict, the referendum of Brexit, China–US trade war, and Brexit day. On average, the result shows that 32.8% of the volatility in one asset spills over to all other assets. The DCC-GARCH results also indicate that crude oil, bonds, and Bitcoin act as almost pure volatility transmitters, whereas the Dollar index, gold, and S&P500 act as volatility receivers. On the other hand, clean energy is found neutral to external shocks until the first quarter of 2020 and after that time, it starts to behave as a volatility transmitter. Based on the obtained results, we offer some specific policy implications that are beneficial to the US economy and other countries.Graphical Dynamic volatility connectedness between fossil energy, clean energy, and major assets (Bonds, Bitcoin, Dollar index, Gold, and Standard and Poor's 500)