Tracing volatility in natural resources, green finance and investment in energy resources: Fresh evidence from China

Abstract

The role of natural resources on economic growth and financial development is debated. Due to its influence on the economy, natural resource volatility is a significant concern for researchers and policymakers. Volatility in other areas, including energy investment and green finance, might affect economic, financial, and environmental indicators, which needs attention in modern times as the literature remains silent. To bridge the gap, the current study aims to identify volatility in natural resources, energy investment, and green finance. Due to the data unavailability issue, this study analyzes only the last three decades, i.e., from 1990 to 2020. Using traditional and appropriate volatility measures, i.e., autoregressive conditional heteroscedasticity (ARCH), the results asserted that natural resources and energy investment are volatile across time. In contrast, no volatility is evident in green finance. This study employed the threshold generalized autoregressive conditional heteroscedasticity TGARCH(1, 1) specification to analyze the shocks' asymmetry. The estimated results uncover that the negative shock in natural resources could lead to higher volatility than the positive shock. However, no asymmetry exists between the positive and negative shocks in energy investment. This study suggests the financial sector's stability and natural resource prices based on the empirical findings. Also, this study recommends that investment in energy resources be diversified by developing alternative energy resources, and green finance investment must be enhanced. This study empirically links financial sector stability and natural resource pricing. This study advises growing alternate energy resources and increasing green finance investment.