Extreme return connectedness and its determinants between clean/green and dirty energy investments

Previous studies point to the time-variation and asymmetry in the relationship between clean energy stocks and crude oil markets, but there is a lack of evidence on the return spillovers between clean/green assets and dirty energy assets (crude oil and energy ETF) in lower and upper quantiles, and their potential drivers. To address these gaps, we apply quantile-based estimators to measure return connectedness at left and right tails of the conditional distribution of return shocks. We find that the average level of return connectedness estimated at the mean/median is 29%, whereas it reaches 65% when estimated at the left and right tails. Thus, return connectedness across clean energy stocks, green bonds, crude oil, and energy ETF is larger at both left and right tails, implying that the unsuitability of applying mean-based connectedness measures. Furthermore, we show that return connectedness measures vary with time, but they are less volatile in the tails. Notably, return connectedness differs between periods of extreme negative returns and periods of extreme negative returns, suggesting an asymmetric behaviour. An analysis of the drivers of the return connectedness shows the importance of macroeconomic conditions, especially at middle and lower quantiles. US dollar has a positive impact in all cases, whereas the crude oil market uncertainty intensifies the return spillovers at the lower quantile.