Examining the quantile cross-coherence between fossil energy and clean energy: Is the dependence structure changing with the COVID-19 outbreak?

Zhuo Wang, Xiaodan Chen, Chunyan Zhou, Yifeng Zhang and Yu Wei

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: The advent of COVID-19 has markedly affected financial and energy markets. Clean energy positions itself as a feasible substitute for fossil fuels, and the crisis has altered the interdependence of these two counterpart markets. This study uses quantile cross-spectral analysis to investigate the dependence structure features of the fossil and clean energy markets, pre- and post-COVID-19 outbreak, under various market conditions and across different investment horizons. Empirical results suggest an anomalous intensification or inversion in the interaction between fossil and clean energy under extreme market conditions post-COVID-19 outbreak, manifesting either an extraordinarily high or low dependency. Additionally, the asset dependence structure exhibits increased heterogeneity across investment horizons after the COVID-19 outbreak, with short-term structures demonstrating higher volatility, while medium- and long-term structures show similarity. Finally, by generating a dynamic energy portfolio, this paper measures the investment allocation weights of each asset before and after the emergence of COVID-19. Findings indicate an increased need for investment in natural gas, crude oil, and clean energy post-COVID-19 outbreak, suggesting a reduction in coal investment. The analyses aim to assist energy investors in enhancing their economic decision-making processes and refining their portfolio management strategies.

Keywords: COVID-19 epidemic; Fossil energy; Clean energy; Quantile cross-spectral; Portfolio (search for similar items in EconPapers)
JEL-codes: C31 C58 G10 Q40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001984

DOI: 10.1016/j.irfa.2024.103266

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