Is the Alternative Energy Sector COVID-19 Resistant? Comparison with the Conventional Energy Sector: Markov-Switching Model Analysis of Stock Market Indices of Energy Companies

Katarzyna Czech,Michał Wielechowski

doi:10.3390/en14040988

Katarzyna Czech, Michał Wielechowski

Open Access

https://doi.org/10.3390/en14040988

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Journal: Energies	Publication Date: Feb 13, 2021
Citations: 25	License type: CC BY 4.0

Affiliation: Warsaw University of Life Sciences

Abstract

The outbreak and rapid spread of the COVID-19 pandemic has hit the global financial markets, including the energy sector. Alternative energy belongs to the economy’s key sectors concerning environmental issues and seems to be a full-fledged alternative for fossil-based conventional energy. This paper aims to assess the impact of COVID-19 on the stock market indices related to the alternative and conventional energy sector. We use daily data on the Morgan Stanley Capital International (MSCI) Global Alternative Energy Index, the MSCI All Country World Index (ACWI) Energy Index, and self-developed Average-49 COVID-19 New Cases Index and Average-49 Stringency Index. The research covers the period January–October 2020. The average level of the MSCI Global Alternative Energy Index in COVID-19 year was more than a quarter higher than in 2019 while the MSCI ACWI Energy fell almost one-third in the same period. Based on the Markov-switching model, we show that both the MSCI Global Alternative Energy and the MSCI ACWI Energy are not significantly affected by the epidemic status. The analysed indices decline as the government anti-COVID-19 policy becomes more stringent, but the relationship is statistically significant only in the high-volatility regime. In comparison to the conventional energy index, we reveal that the alternative energy index stays most of its time in the low-volatility regime without being adversely and significantly affected by the COVID-19 related indicators. Our study shows that the alternative energy sector, represented by the MSCI Global Alternative Energy Index, seems to be more resistant to COVID-19 than the conventional energy sector. It might imply that the novel coronavirus pandemic has not depreciated but emphasised the growing concern about climate change and environmental pollution.

Highlights

Coronavirus disease 2019—COVID-19—is a contagious disease caused by the severe acute respiratory syndrome coronavirus 2—SARS-CoV-2
Our study focuses on the alternative energy sector stock market’s reaction to two COVID-19–related indicators, i.e., the epidemic status measured by the number of COVID19 new infections and the stringency of governmental anti-COVID-19 policy measured by the stringency index
As our goal is to investigate the COVID-19 impact on the alternative energy market, we focus on the 2020 and COVID-19–related variables, i.e., epidemic status measured by the Average-49 COVID-19

Summary

Introduction

Coronavirus disease 2019—COVID-19—is a contagious disease caused by the severe acute respiratory syndrome coronavirus 2—SARS-CoV-2. The rapid spread of COVID-19 led the World Health Organization to declare the disease a public health emergency of international concern on 30 January 2020 and classify it as a global pandemic on 11 March. The disease was first observed in China in December 2019, and it has spread fast worldwide [4]. Since the beginning of the pandemic until 31 January 2021, about 103 million cases of COVID-19 have been reported worldwide, causing 2.23 million deaths [5]. COVID-19 has hit the economies and humans on an unprecedented scale since the Great Depression (1929–1933) or the global financial crisis (2008–2009) and is epidemically compared to the Spanish flu pandemic of 1918 [10,11,12]

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