About the relationship between renewable energy and oil markets

Gaye Del Lo

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper examines the link between oil and renewable energy markets. To this end, on the one hand, we identify high and low volatility states of oil markets, using the regime-switching EGARCH (1,1) model, and analyze its effects on the renewable energy market. On the other hand, we develop a methodology to identify positive and negative oil shocks and investigate their implications for renewable energy markets. We show that: (1) state shifts are clearly present in the oil and renewable energy data; (2) the volatility links between oil and renewable energy markets are regime-dependent. When the oil market is in a high-volatility regime, it exacerbates the volatility of renewable energy markets, but in a low-volatility regime, it has no effect or a stabilizing effect on the volatility of renewable energy market; (3) the results also reveal that the renewable energy market reacts positively to extreme upward movements of oil prices and negatively to extreme downward movements. These results have several implications in terms of policies, portfolio optimization and risk management.

Keywords: Cliometrics, renewable energy; oil price; EGARCH(1,1); markov-switching; VaR. (search for similar items in EconPapers)
JEL-codes: C58 E44 Q42 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2019-31

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