Co-movements and spillovers of oil and renewable firms under extreme conditions: New evidence from negative WTI prices during COVID-19

Shaen Corbet, John W. Goodell and Samet Günay

Energy Economics, 2020, vol. 92, issue C

Abstract: We test for the existence of volatility spillovers and co-movements among energy-focused corporations during the outbreak of the COVID-19 pandemic, inclusive of the April 2020 events where West Texas Intermediate (WTI) oil future prices became negative. Employing the spillover index approach of Diebold and Yilmaz (2012); as well as developing a DCC-FIGARCH conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast-error variance decompositions are invariant to the variable ordering, we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector. Among several results, we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets. However, this result is only found for the narrow portion of our sample surrounding the negative WTI event. We interpret our results being directly attributed to a sharp drop in global oil, gas and coal demand, rather than because of a sudden increase in oil supply. While investors observed the US fracking industry losing market share to coal, they also viewed renewables as more reliable mechanism to generate long-term, stable and low-cost supply.

Keywords: Oil prices; Oil and gas corporations; Volatility spillovers; Volatility co-movement; Market linkage; Financial crisis; Contagion (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (137)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988320303182
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320303182

DOI: 10.1016/j.eneco.2020.104978

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().