Interplay between renewable energy and fossil fuel markets: Fresh evidence from quantile-on-quantile and wavelet quantile approaches

Oguzhan Ozcelebi, Rim El Khoury and Seong-Min Yoon

Energy Economics, 2024, vol. 140, issue C

Abstract: Highlighting the unprecedented rise in CO2 emissions from the global energy sector, the paper discusses the significant shift towards renewable energy, which has reshaped financial markets and investment landscapes. Despite the transition, conventional fossil fuel energy remains pivotal to the global economy, influencing renewable energy markets, especially during financial crises. Using advanced methodologies, quantile-on-quantile regression (QQR) and wavelet quantile regression (WQR), this study investigates the interplay between individual fossil fuel stocks and various renewable energy assets, including exchange-traded funds (ETFs) and yieldcos. The findings reveal substantial interdependencies between these markets, with fossil fuel stocks notably negatively impacting renewable energy assets under extreme market conditions. During turbulent periods, renewable energy assets function as safe havens against the volatility of fossil fuel stocks in the short term. Conversely, under normal market conditions, while renewable energy ETFs and yieldcos can hedge against fossil fuel volatility, they can also serve as diversifiers in the long term. The results underscore the importance of understanding these dynamic interactions to develop effective investment strategies and policies. The study's insights are crucial for investors and policymakers in mitigating investment risks and fostering a resilient transition to sustainable energy systems, emphasizing the need for comprehensive frameworks to manage the interconnectedness between fossil fuel and renewable energy markets.

Keywords: Renewable energy; Fossil fuel stocks; Investment strategies; Climate change; Quantile-on-quantile spillovers; Wavelet quantile spillovers (search for similar items in EconPapers)
JEL-codes: C32 G11 G14 Q14 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:140:y:2024:i:c:s0140988324007205

DOI: 10.1016/j.eneco.2024.108012

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