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Risk connectedness between energy and stock markets: Evidence from oil importing and exporting countries

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  • Benlagha, Noureddine
  • Karim, Sitara
  • Naeem, Muhammad Abubakr
  • Lucey, Brian M.
  • Vigne, Samuel A.

Abstract

The surmounted environmental and energy challenges have motivated this study to explore the connectedness nexus between oil/renewable energy and stock markets for oil-exporting (importing) countries. We utilize the dynamic conditional correlation (DCC-GARCH) connectedness framework to compare the connectedness of oil/renewable energy with stock markets. Our results showcase higher total connectedness between renewable energy and stock markets. We find increased connectedness during three major pandemics (Swine Flu, EBOLA, and COVID-19). We performed a regression analysis that highlighted the impact of economic and financial uncertainties on connectedness as an additional analysis. The addition of dummy variables for three major pandemics indicates that COVID-19 significantly impacted the connectedness between oil/renewable energy and stock markets. For the robustness of our results, we employed time-varying vector autoregressions (TVP-VAR) connectedness framework to showcase that our results remain qualitatively similar and robust to different specifications. We draw useful implications for oil exporting and oil importing countries in particular, and we draft ramifications for investors, portfolio managers, policymakers, and macroprudential bodies in general.

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  • Benlagha, Noureddine & Karim, Sitara & Naeem, Muhammad Abubakr & Lucey, Brian M. & Vigne, Samuel A., 2022. "Risk connectedness between energy and stock markets: Evidence from oil importing and exporting countries," Energy Economics, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004777
    DOI: 10.1016/j.eneco.2022.106348
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    Cited by:

    1. Karol Szafranek & Michał Rubaszek & Gazi Salah Uddin, 2023. "The role of uncertainty and sentiment for intraday volatility connectedness between oil and financial markets," KAE Working Papers 2023-095, Warsaw School of Economics, Collegium of Economic Analysis.
    2. Arfaoui, Nadia & Naeem, Muhammad Abubakr & Boubaker, Sabri & Mirza, Nawazish & Karim, Sitara, 2023. "Interdependence of clean energy and green markets with cryptocurrencies," Energy Economics, Elsevier, vol. 120(C).
    3. Rui Dias & Nicole Horta & Mariana Chambino, 2023. "Clean Energy Action Index Efficiency: An Analysis in Global Uncertainty Contexts," Energies, MDPI, vol. 16(9), pages 1-18, May.
    4. Derick Quintino & Cristiane Ogino & Inzamam Ul Haq & Paulo Ferreira & Márcia Oliveira, 2023. "An Analysis of Dynamic Correlations among Oil, Natural Gas and Ethanol Markets: New Evidence from the Pre- and Post-COVID-19 Crisis," Energies, MDPI, vol. 16(5), pages 1-14, February.
    5. Naeem, Muhammad Abubakr & Karim, Sitara & Abrar, Afsheen & Yarovaya, Larisa & Shah, Adil Ahmad, 2023. "Non-linear relationship between oil and cryptocurrencies: Evidence from returns and shocks," International Review of Financial Analysis, Elsevier, vol. 89(C).
    6. Farid, Saqib & Karim, Sitara & Naeem, Muhammad A. & Nepal, Rabindra & Jamasb, Tooraj, 2023. "Co-movement between dirty and clean energy: A time-frequency perspective," Energy Economics, Elsevier, vol. 119(C).

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