Exploring the interconnectedness of China's new energy and stock markets: A study on volatility spillovers and dynamic correlations

Guangchen Li, Z.Y. Shen, Malin Song and Weixian Wei

International Review of Economics & Finance, 2024, vol. 89, issue PB, 471-484

Abstract: In its efforts to achieve carbon peak and carbon neutrality, China has focused on new energy as a key driver, with significant implications for China's new energy and stock markets. However, few studies have examined the relationship between the two markets. Based on multivariate generalized autoregressive conditional heteroskedasticity models, we investigate the volatility spillovers and dynamic correlations between China's new energy and stock markets using daily data from 2009 to 2023. And we also explore how these dimensions changed during the financial crisis in 2015 and the COVID-19 period. Our findings indicate that there are bidirectional volatility spillovers and asymmetric effects between these markets, suggesting that risks can accumulate and negative shocks may have greater impacts than positive ones. These findings are still robust after changing the distribution of the error term and excluding the impact of COVID-19. Significantly, volatility spillovers between markets increased and asymmetric effects disappeared during the two events due to the extreme turbulence in the stock market. Additionally, we find that the two markets exhibit high interdependence, implying the existence of risk synergy effects and limited possibilities for portfolio diversification. Finally, our analysis of the marginal expected shortfall indicates that losses in China's new energy market increased during the financial crisis in 2015, implying that this strategic market is more exposed to the negative shocks of the stock market. These results are valuable to policymakers, investors, and companies involved in China's new energy market.

Keywords: New energy; Volatility spillovers; Dynamic correlations; Financial crisis; COVID-19 (search for similar items in EconPapers)
JEL-codes: C51 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:471-484

DOI: 10.1016/j.iref.2023.10.030

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