On the Dynamic Connectedness of the Stock, Oil, Clean Energy, and Technology Markets

Abstract

Using monthly data from September 2004 to February 2020, this paper investigates the connectedness of the renewable energy, common stock, oil, and technology markets. The time-domain Diebold and Yilmaz spillover index approach is used to analyze the volatility spillover between these four markets. The study’s findings reveal that the oil and clean energy markets have bidirectional volatility spillover. The oil market has been found to be a net receiver of volatility. Furthermore, the study shows that volatility spillover is stronger in extreme positive and negative shock periods than in medium shock periods. Our findings show that, during crisis periods, the volatility spillover index rises, while the total connection reached its lowest point in 2015. Our findings suggest that policymakers should be informed that, as long as oil prices remain low, alternative energy-producing industries will not require specific policies to mitigate their vulnerability to crude oil price shocks. However, large spillover in the tails—particularly in the right tail—indicates vulnerability to extreme events, such as the negative effect of oil price increases.