Asymmetric connectedness and dynamic spillovers between renewable energy and rare earth markets in China: Evidence from firms’ high-frequency data

The accelerating pace of energy use transition towards renewable energy worldwide has triggered the amplification of the demand for rare earths. This paper aims to explore the risk transfer between renewable energy and rare earth markets from the perspective of firms. The intention is motivated by the observation that significant investments regarding renewable energy are projected for the future and rare earths have emerged as an investment vehicle. By applying the DY (Diebold and Yilmaz) index onto high-frequency data, this paper sheds light on the connectedness between new energy and rare earth markets at firm level. Empirical results show that moderate volatility spillovers exist between these two markets in China. The risk transfer between firms in renewable energy and rare earth markets is also delineated in the form of network connectedness. The magnitude of risk transfer among firms may alter and the structure of risk transfer has seen shifts of focuses among firms over time. Furthermore, using the method of spillover asymmetric measure, pessimistic mood is detected in both markets during most of the period from 2012 to 2020, which indicates a lack of confidence and efficiency in the financing channel of stock. Compared with the existing literature, this article provides a finance-oriented exploration between these two markets using high-frequency data and a detailed illustration at firm level, which may help inform the decision-making for stakeholders.