Analyzing the dynamic connectedness between oil and clean energy stocks: Return and volatility perspective

In this study, the dynamic interconnectedness between crude oil and clean energy stocks is analyzed separately in terms of both return and volatility. For this purpose, US West Texas Intermediate (WTI) crude oil spot prices representing oil and daily closing stock prices of First Solar, NextEra Energy, Longi Green Energy Technology, Sungrow Power Supply and Vestas Wind System, which are among the companies with the highest market capitalization, are represent the clean energy sector. The data of the variables for the period 08.10.2014-01.10.2024 are analyzed with the Time Varying Parameter Vector Autoregression (TVP-VAR) model. As a result of the analysis of return spillovers, it is determined that First Solar, Sungrow and Longi are variables that return transmitter, while WTI, Vestas and NextEra are variables that receiver of return spillover. As a result of the analysis of volatility spillovers, it is determined that crude oil is a volatility transmitter while clean energy companies are volatility receivers. When these two results are evaluated together, it is seen that crude oil receives return spillovers but is a net transmitter of shocks. Based on this result, it can be said that price changes in crude oil prices are perceived as a indicator of global risks. In addition, as a result of the analysis, it is observed that the dynamic connectedness between the variables is quite low, but this relationship is relatively higher during periods of turbulence. Therefore, investors should be more careful when formulating investment strategies in such periods.