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Asymmetric effects of financial volatility and volatility-of-volatility shocks on the energy mix

Author

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  • Guinea, Laurentiu
  • Pérez, Rafaela
  • Ruiz, Jesús

Abstract

We examine the asymmetric effects of financial instability shocks and their volatility on the conventional and renewable energy mix. We utilize Chicago Board Options Exchange (CBOE) Volatility Index (VIX) and the Volatility-of-Volatility index (vVIX) in a nonlinear autoregressive distributed lag (NARDL) model to estimate the short- and long-term asymmetry effects across energy mix in Europe, the US, and China. Our estimations indicate that the long-term effects over the energy mix are more significant than their short-term effects. The results also show that the responses to the volatility of financial instability, vVIX, are different from the responses to financial instability itself, VIX, and revealed a more pronounced impact on changes in vVIX compared to VIX. We find that the asymmetries of energy mix responses to positive or negative shocks in VIX and vVIX have been decreasing over the periods.

Suggested Citation

  • Guinea, Laurentiu & Pérez, Rafaela & Ruiz, Jesús, 2024. "Asymmetric effects of financial volatility and volatility-of-volatility shocks on the energy mix," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612323013107
    DOI: 10.1016/j.frl.2023.104938
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    Keywords

    Asymmetries; Financial instability; NARDL; Renewable energy; VIX; Volatility-of-volatility;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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