Quantile time-frequency connectedness among G7 stock markets and clean energy markets

Abstract

The rapid growth of clean energy markets as a distinct asset class has attracted significant investor attention. This study examines the interdependence between G7 stock markets and clean energy indices, specifically Renewable Energy Generation (REG), Energy Efficiency (EE), Advanced Materials (AM), and Clean Fuels (CF). Using a state-of-the-art volatility connectedness network and Maximum Overlaps Discrete Wavelet Transform (MODWT), we investigate the quantile time-frequency connectedness among the markets. Our findings reveal strong volatility linkages among all markets, with the exception of Clean Fuels, which has the least connection. We also observe higher dynamic spillover effects under extreme market conditions than normal conditions, with the US market being the most important transmitter of spillovers under bullish markets. Additionally, we highlight the importance of considering the time-varying nature of connectedness, emphasizing the heterogeneity between short-run, medium-run, and long-run transmission. Our study's implications suggest that investors should consider the dynamic nature of spillovers and connectedness when constructing portfolios containing clean energy and G7 stock market assets. The results also imply that the US market's performance has a substantial impact on other markets under bullish conditions, and that Clean Fuels may present an attractive investment opportunity for diversification purposes due to its relative independence.