Green markets integration in different time scales: A regional analysis

Christian UROM

This paper examines the interactions among regional green energy equity markets and their dependence and connectedness with both uncertainties and price fluctuations in the global financial and crude oil markets. Using wavelets and spillovers based on a Time-Varying Parameter VAR model with stochastic volatility, we investigate the lead-lag relationships, co-movement and time-varying integration among these markets across different time domains. First, we found low covariance but positive and strong correlations among regional green energy equities across all time scales. Correlations are mainly negative and weak between regional green energy returns and uncertainties, except for Asia that exhibits positive correlation with oil price shocks in the long term. In terms of fluctuations in prices, results are similar regarding the covariance and correlations with global equity market prices but different for crude oil prices, where all regional green equity markets exhibit positive covariance and correlation with oil price changes especially in the medium term. Second, strong dependence exist among regional green energy equity markets in the medium and long term, especially between the U.S. and European markets. Similarly, dependence among green energy equities and global equity and oil markets both in terms of uncertainties and price fluctuations is weak in the short-run but strengthens towards the long-term except during the COVID-19 period when short-term integration rose sharply. Lastly, the global equity market is the leading source of risks while the Asian green equity market is the main net-receiver of shocks, especially in terms of price fluctuations in the global equity and crude oil markets. We document some crucial practical implications of these results both for investors and policy makers.

Publication type: 
Scientific Article
Date de parution: 
Energy Economics