Is the Alternative Energy Sector COVID-19 Resistant? Comparison with the Conventional Energy Sector: Markov-Switching Model Analysis of Stock Market Indices of Energy Companies

Katarzyna Czech and Michał Wielechowski
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Katarzyna Czech: Department of Econometrics and Statistics, Institute of Economics and Finance, Warsaw University of Life Sciences-SGGW, Nowoursynowska 166, 02-787 Warsaw, Poland
Michał Wielechowski: Department of Economics and Economic Policy, Institute of Economics and Finance, Warsaw University of Life Sciences-SGGW, Nowoursynowska 166, 02-787 Warsaw, Poland

Energies, 2021, vol. 14, issue 4, 1-17

Abstract: The outbreak and rapid spread of the COVID-19 pandemic has hit the global financial markets, including the energy sector. Alternative energy belongs to the economy’s key sectors concerning environmental issues and seems to be a full-fledged alternative for fossil-based conventional energy. This paper aims to assess the impact of COVID-19 on the stock market indices related to the alternative and conventional energy sector. We use daily data on the Morgan Stanley Capital International (MSCI) Global Alternative Energy Index, the MSCI All Country World Index (ACWI) Energy Index, and self-developed Average-49 COVID-19 New Cases Index and Average-49 Stringency Index. The research covers the period January–October 2020. The average level of the MSCI Global Alternative Energy Index in COVID-19 year was more than a quarter higher than in 2019 while the MSCI ACWI Energy fell almost one-third in the same period. Based on the Markov-switching model, we show that both the MSCI Global Alternative Energy and the MSCI ACWI Energy are not significantly affected by the epidemic status. The analysed indices decline as the government anti-COVID-19 policy becomes more stringent, but the relationship is statistically significant only in the high-volatility regime. In comparison to the conventional energy index, we reveal that the alternative energy index stays most of its time in the low-volatility regime without being adversely and significantly affected by the COVID-19 related indicators. Our study shows that the alternative energy sector, represented by the MSCI Global Alternative Energy Index, seems to be more resistant to COVID-19 than the conventional energy sector. It might imply that the novel coronavirus pandemic has not depreciated but emphasised the growing concern about climate change and environmental pollution.

Keywords: alternative energy sector; conventional energy sector; COVID-19; novel coronavirus pandemic; COVID-19 new cases; stringency of government anti-COVID-19 policy; Markov-switching model (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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