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Spillover effects of clean energy risks and the impacts of economic policy uncertainty on the stability of the equity market: A dependence dynamics analysis

Author

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  • Hsu, Ching-Chi
  • Tsai, Wei-Che

Abstract

This study investigates the spillover effects of clean energy risks and economic policy uncertainty on the stability of the equity market. We use dependence dynamics through copulas with regime switching to analyze the dependence pattern of the spillover effects and the stability of the equity market. The dependence dynamics model results reveal the existence of asymmetric dependence between these factors, with the impact of the spillover effect on the stability of the equity market being more pronounced in the high-dependence regime. To test our findings, we formulate an investment strategy to facilitate an investigation of investment efficiency and profitability. Our performance test results confirm that our investment strategy outperforms, producing a high ratio of investment efficiency. Our research indicates that an unstable economic policy environment can increase clean energy risks, ultimately having spillover effects on the stability of the equity market. Our study provides references for policy regulators to design or adjust their energy policies and a guide for investors to make strategic investment decisions to avoid clean energy risks.

Suggested Citation

  • Hsu, Ching-Chi & Tsai, Wei-Che, 2025. "Spillover effects of clean energy risks and the impacts of economic policy uncertainty on the stability of the equity market: A dependence dynamics analysis," The North American Journal of Economics and Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001159
    DOI: 10.1016/j.najef.2025.102475
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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