Abstract
Do tail events in the oil market trigger extreme responses by the clean-energy financial market (and vice versa)? This paper investigates the relationship between oil price and clean-energy stock with a novel methodology, namely extreme events study. The aim is to investigate an asymmetry effect between the response to good versus bad days. The results show how the two markets influence each other more negatively, i.e., extreme negative events significantly impact the other market. Furthermore, we document how the impact of the shock transmitted by oil prices to clean-energy stocks is less than the amount of shock transmitted oppositely. These findings have important implications for investor and renewable energy policies.
Highlights
The use of the extreme event study approach is justified to present fresh evidence of the clean-oil nexus of tail risk, in contrast by previous studies that are based on a mean-to-mean analysis and to check if extreme tail events between the two markets are symmetrically dependent
The impact of the shock transmitted by oil prices to clean-energy stocks is less than the amount of shock transmitted in the opposite way
The performance of renewable firms depends more on the behavior of oil prices, which partially determine the economic viability of substitution between exhaustible and sustainable energy resources
Summary
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. The four variables are the stock price of alternative energy companies “WilderHill New Energy Global Innovation Index”, the stock prices of technology companies “New York Stock Exchange Arca Tech 100 Index”, oil price as the average of weekly closing spot prices of West Texas Intermediate and Brent crude oil, and interest rate as 10-Year Treasury Constant Maturity Rate This affirmation explains that the existence of structural breaks in the period of the analysis can produce misleading results if they are not incorporated in the cointegration testing model. We show the reaction of the clean-energy market to events relevant to the oil market (and vice versa)
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