Extreme return connectedness among renewable energy and rare earth markets: The role of global factors

In this paper, we explore the interplay between renewable energy (using indexes tracing the performance of solar, wind, geothermal, and fuel cell sectors) and rare earth markets by considering the TVP-VAR and the Quantile-VAR models. Our evidence indicates that the Total Connectedness Index (TCI) at the conditional mean and median is similar, exhibiting a sharp increase around the first quarter of 2020. In addition, the rate earth index and the geothermal energy index appear to be a net receiver of return spillovers in all three scenarios, while fuel cell and wind become net transmitters at the upper and lower tails. Then, considering the impact of extreme variation, we find that return connectedness intensifies during extreme events, suggesting that asymmetric spillovers exist among these markets when considering the lower and upper tails. We then analyze the potential effect of various factors on total connectedness, documenting their significant impact on the interdependence of these two markets. Our results have some implications for the spread of risk and contagion in these markets, especially during times of crisis.