Internal and external risk spillovers in energy and metal markets: the role of economic policy uncertainties

Economic policy uncertainty has intensified volatility in energy markets and facilitated the spread of cross-market risks. Notably, metals play an indispensable role as a critical underpinning of clean energy technologies throughout the energy transition process. Given this, we employ the time-varying parameter vector autoregressive (TVP-VAR) connectedness decomposition method to calculate spillover effects within and across the fossil energy, clean energy, and energy metal markets (the FCM system). On this basis, we apply the wavelet coherence model to examine the lead-lag relationship of monetary policy uncertainty (MPU), trade policy uncertainty (TPU) and fiscal policy uncertainty (FPU) on spillovers. Finally, we develop portfolio strategies for the FCM system under different uncertainty regimes. Our main findings are as follows. First, internal (within-market) and external (cross-market) spillover effects accounted for 29.37 % and 23.42 % respectively. Renewable energy developers and operators emerge as the largest net transmitter, while cobalt is the largest net receiver. Additionally, spillovers exhibit significant time-varying characteristics and heightened sensitivity during crisis periods. Second, MPU, TPU and FPU amplify or dampen both internal and external risk spillovers, particularly in the medium to long term, with the clean energy market bing more sensitive to these uncertainties. Third, investors should overweight assets linked to renewable-energy developers and operators and dynamically adjust holdings of energy metals such as cobalt, copper, and aluminum in response to policy uncertainty conditions to achieve optimal risk diversification. Our findings provide insights for countries to improve institutional mechanisms and policy measures for the low-carbon energy transition.