Impact of silver price uncertainty on solar energy firms

Abstract

To the best of our knowledge, we are the first to investigate if silver market uncertainty impacts the stock price performance of solar energy firms. Such investigation could be of vital importance to investors and policymakers given that silver is heavily utilized in photovoltaic (PV) process for producing solar energy. Methodologically, we apply the GARCH-jump process to estimate the effect of silver market uncertainty, proxied by silver volatility index (VXSLV), on the global solar energy stock indexes. Using a recent data set, we document the following key findings. First, there exists a negative effect of VXSLV on the equity indexes under study. This result suggests that an upsurge in silver market volatility would create a chaos in the solar energy business. Second, the impact of silver volatility index on renewable energy firms holds even when we control for the impact of oil price volatility (OVX), albeit OVX, when compared to VXSLV, transmits higher risk to alternative energy stocks as evidenced by the magnitudes of the estimated parameters. Third, the impact of silver market uncertainty appears to be symmetric implying that increases and decreases in VXSLV would have a homogeneous impact on the solar energy stock returns. We finally show that equity prices of solar energy firms are characterized by time-varying jumps. The implications of the results are discussed as well.