Dynamic Effects of Shadow Economy and Environmental Pollution on the Energy Stock Prices

This thesis aims to study the dynamic effects of shadow economies and environmental pollution on energy stock prices by empirically investigating the case of Turkey and the Organization for Economic Co-operation and Development (OECD) countries using Generalized Methods of Moments (GMM). The GMM analysis of Turkey has been done years from 2006 to 2014. The results of GMM analysis show that; negative link exists between shadow economies and the energy stock prices of Turkey. Therefore, an increase in shadow economies decreases the energy stock prices. Additionally, energy stock performance is not significantly related to environmental deterioration. Nevertheless, it is also found that the level of shadow economies rises with growth in energy consumption and emission levels. The analysis of OECD countries covers years from 2004 to 2014. The results of GMM analysis show a significant relationship exists between shadow economies, energy stock prices, and environmental pollution. Environmental pollution negatively affects energy stock prices even energy demand found positively linked with energy stock prices. On the other hand, U- shaped relationship found between energy stock prices and shadow economies, which means the response of energy stock prices to the volume of shadow economies is negative at the lower level of shadow economies; then beyond a trough point, this link turns to be positive with the higher level of shadow economies. Keywords: energy stock prices, shadow economies, environmental pollution, generalized methods of moments, Turkey, OECD.