The COVID-19 storm and the energy sector: The impact and role of uncertainty

Jan Jakub Szczygielski, Janusz Brzeszczynski, Ailie Charteris and Princess Rutendo Bwanya

Energy Economics, 2022, vol. 109, issue C

Abstract: Prior research has shown that energy sector stock prices are impacted by uncertainty. The coronavirus (COVID-19) pandemic has given rise to widespread health and economic-related uncertainty. In this study, we investigate the magnitude and the timing of the impact of COVID-19 related uncertainty on returns and volatility for 20 national energy indices and a global energy index using ARCH/GARCH models. We propose a novel “overall impact of uncertainty” (OIU) measure, explained using a natural phenomenon analogy of the overall impact of a rainstorm, to gauge the magnitude and intensity of the impact of uncertainty on energy sector returns. Drawing upon economic psychology, COVID-19 related uncertainty is measured in terms of searches for information relating to COVID-19 as captured by Google search trends. Our results show that the energy sectors of countries further west from the outbreak of the virus in China are impacted to a greater extent by COVID-19 related uncertainty. A similar observation is made for net energy and oil exporters relative to importers. We also find that the impact of uncertainty on most national energy sectors intensified and then weakened as the pandemic evolved. Additional analysis confirms that COVID-19 uncertainty is part of the composite set of factors that drive energy sector returns over the COVID-19 period although its importance has declined over time.

Keywords: COVID-19; Overall impact of uncertainty (OIU) measure; Stock returns; Stock return volatility; Uncertainty; Energy sector (search for similar items in EconPapers)
JEL-codes: C22 C58 D53 G01 G12 G14 Q40 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988321001638

DOI: 10.1016/j.eneco.2021.105258

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