The Effects of Global Volatility Indices on Green and Fossil Energy Markets

Pinar Evrim Mandaci, Efe Caglar Cagli and Birce Tedik Kocakaya
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Pinar Evrim Mandaci: Department of Business Administration, Faculty of Business, Dokuz Eylul University, Izmir, Turkiye
Efe Caglar Cagli: Department of Business Administration, Faculty of Business, Dokuz Eylul University, Izmir, Turkiye
Birce Tedik Kocakaya: Department of International Trade and Finance, Faculty of Business, Izmir University of Economics, Izmir, Turkiye

Czech Journal of Economics and Finance (Finance a uver), 2025, vol. 75, issue 3, 277-302

Abstract: Uncertainties cause significant fluctuations in financial markets. Energy markets are more susceptible to uncertainties because of their strategic importance. This paper examines connectedness among various implied volatility indices (stock, oil, gold, currency), green markets (green stocks, bonds), and fossil energy commodities (natural gas, oil, heating oil, gasoline) from November 2, 2012, to July 25, 2023, by employing Chatziantoniou et al. (2023)’s TVP-VAR model. We use Broadstock et al. (2022)’s Minimum Connectedness Portfolio technique to construct optimal portfolio weights and hedge ratios. Our findings reveal moderate interdependence, with an increase during the pandemic. Short- and long-term factors are equally significant in this connectedness. All volatility indices are volatility transmitters, while energy markets are recipients. We provide important implications for investors interested in energy markets and aiming at constructing optimal hedging strategies, as well as for policymakers aiming to develop policies to stabilize energy prices and increase the effectiveness of green markets.

Keywords: Volatility indices; Green markets; Fossil energy markets; TVP-VAR Model; Connectedness (search for similar items in EconPapers)
JEL-codes: C32 F3 G12 Q43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:75:y:2025:i:3:p:277-302

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