The interconnectivity between green stocks, oil prices, and uncertainty surrounding economic policy: indications from the United States

Abiodun Moses Adetokunbo () and Afe Success Mevhare ()
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Abiodun Moses Adetokunbo: Augustine University
Afe Success Mevhare: Augustine University

SN Business & Economics, 2024, vol. 4, issue 2, 1-26

Abstract: Abstract This paper investigates the interconnectivity among economic policy uncertainty, green stocks, and oil prices in the United States, an analysis was carried out utilizing a Time-Varying Parameter Vector Autoregression model with monthly data covering the period of 2006 to 2021. The literature review synthesizes three strands of relationships: oil prices and green stocks, EPU and green stocks, and oil price and economic policy uncertainty, revealing a gap in existing research that this study aims to fill by simultaneously examining all three variables. The results accentuate the interconnectedness of these variables, emphasizing green stocks as a crucial conduit for economic disturbances. Economic policy uncertainty emerges as a primary driver, meaningfully affecting renewable energy stock performance. Global economic policy uncertainty, when coupled with Brent oil prices, shows a stronger ripple effect on green stocks. The study shows directional spillovers between US and global EPU, with green stocks, WTI oil prices, and US EPU acting as transmitters and US GDP and inflation rate as receivers of shocks. Green stocks exert a higher spillover effect on oil prices than vice versa, highlighting the importance of sustainable investments. Recommendations advocate for maintaining investments in renewable stocks and urge policymakers to formulate transparent policies to foster the green investment sector. Greater intelligibility in policy decisions is recommended to lessen possible adverse effects of economic policy uncertainty. The study emphasizes the necessity of factoring in global economic trends when formulating energy-related policies, emphasizing the importance of monitoring and integrating global economic dynamics into decision-making processes.

Keywords: Green stocks; Economic policy uncertainty; Oil price; TVP–VAR (search for similar items in EconPapers)
JEL-codes: D8 O51 Q41 Q42 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s43546-023-00617-y

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