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From volatility spillover to risk spread: An empirical study focuses on renewable energy markets

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  • Zhou, Wei
  • Gu, Qinen
  • Chen, Jin

Abstract

System risks caused by volatility spillover would possibly threaten the stability of financial markets. Effective control of volatility spillover is conducive to prevent of financial system risks. Therefore, this paper studies volatility spillover in the main renewable energy markets from 2010 to 2019 and analyzes how risks spread in hope of finding effective management to reduce financial system risks. For this purpose, this paper identifies the volatility spillover effect from a multidimensional perspective by using the BEKK model and reveals the risk spread path by using the multidimensional analysis method. Further, the risk spread relationships among the renewable energy markets are comprehensively analyzed. The main findings of the paper are: (1) The volatility spillover in the renewable energy markets tends to exist in the high dimensions. (2) In the renewable energy market system, the volatility spillover relationships involving multiple markets are more complicated than those between two markets. (3) The fuel cell energy market and solar energy markets occupy a significant position in the path of risk spread which should be paid more attention by policymakers to prevent financial system risks.

Suggested Citation

  • Zhou, Wei & Gu, Qinen & Chen, Jin, 2021. "From volatility spillover to risk spread: An empirical study focuses on renewable energy markets," Renewable Energy, Elsevier, vol. 180(C), pages 329-342.
    • Handle: RePEc:eee:renene:v:180:y:2021:i:c:p:329-342
    DOI: 10.1016/j.renene.2021.08.083
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    2. Zhao, Yihang & Zhou, Zhenxi & Zhang, Kaiwen & Huo, Yaotong & Sun, Dong & Zhao, Huiru & Sun, Jingqi & Guo, Sen, 2023. "Research on spillover effect between carbon market and electricity market: Evidence from Northern Europe," Energy, Elsevier, vol. 263(PF).
    3. Gong, Xiao-Li & Zhao, Min & Wu, Zhuo-Cheng & Jia, Kai-Wen & Xiong, Xiong, 2023. "Research on tail risk contagion in international energy markets—The quantile time-frequency volatility spillover perspective," Energy Economics, Elsevier, vol. 121(C).
    4. Sun Meng & Yan Chen, 2023. "Market Volatility Spillover, Network Diffusion, and Financial Systemic Risk Management: Financial Modeling and Empirical Study," Mathematics, MDPI, vol. 11(6), pages 1-16, March.
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    6. Song, Feng & Cui, Jian & Yu, Yihua, 2022. "Dynamic volatility spillover effects between wind and solar power generations: Implications for hedging strategies and a sustainable power sector," Economic Modelling, Elsevier, vol. 116(C).
    7. Deng, Jing & Zheng, Huike & Xing, Xiaoyun, 2023. "Dynamic spillover and systemic importance analysis of global clean energy companies: A tail risk network perspective," Finance Research Letters, Elsevier, vol. 55(PB).

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