Asymmetric spillover and network connectedness of policy uncertainty, fossil fuel energy, and global ESG investment

Ling Lin, Yong Jiang and Zhongbao Zhou

Applied Energy, 2024, vol. 368, issue C, No S0306261924008158

Abstract: This study investigates the asymmetric spillover network connectedness of policy uncertainty, the fossil fuel energy market, and global ESG investment by using a time-frequency domain analysis. The study employs a time-varying filter for the empirical mode decomposition method and Pearson correlation coefficient to distinguish signals' dynamic frequency and amplitude. We combine a two-state fractionally integrated asymmetric power autoregressive conditional heteroskedasticity with asymmetric time-varying parameter vector autoregression and vector autoregression-common factor variance decomposition. The Vector Auto Regression-common factor model is also considered. The results demonstrate that when the economy runs smoothly, risks originating from the natural gas market have indirect spillover effects on emerging economies' ESG investment. When normal economic fluctuations occur, risks arising from fossil fuel energy markets and US climate policy uncertainty exert separate direct and indirect spillovers to the global ESG investment. Second, when the economy declines, different types of spillovers occur from US economic policy uncertainty (EPU) to global ESG investment. During the recession, greater risks in the crude oil market and the uncertainty in China's economic policy caused separate indirect spillovers to advanced economies' ESG investment. Third, with the continuous occurrence of irregular events, asymmetric spillovers can originate from the natural gas market and US EPU. When extreme events occur, positive risks from China's economic policy can be indirectly transmitted to emerging economies' ESG investment, while negative risks from the US monetary policy can be directly transferred to global ESG investment. Finally, the crude oil market can directly transmit an idiosyncratic risk to global ESG investment.

Keywords: Policy uncertainty and fossil fuel energy; Global ESG investment; Asymmetric time-frequency spillover networks (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.apenergy.2024.123432

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