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The Effects of Global Volatility Indices on Green and Fossil Energy Markets

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  • Pinar Evrim Mandaci

    (Department of Business Administration, Faculty of Business, Dokuz Eylul University, Izmir, Turkiye)

  • Efe Caglar Cagli

    (Department of Business Administration, Faculty of Business, Dokuz Eylul University, Izmir, Turkiye)

  • Birce Tedik Kocakaya

    (Department of International Trade and Finance, Faculty of Business, Izmir University of Economics, Izmir, Turkiye)

Abstract

Uncertainties cause significant fluctuations in financial markets. Energy markets are more susceptible to uncertainties because of their strategic importance. This paper examines connectedness among various implied volatility indices (stock, oil, gold, currency), green markets (green stocks, bonds), and fossil energy commodities (natural gas, oil, heating oil, gasoline) from November 2, 2012, to July 25, 2023, by employing Chatziantoniou et al. (2023)’s TVP-VAR model. We use Broadstock et al. (2022)’s Minimum Connectedness Portfolio technique to construct optimal portfolio weights and hedge ratios. Our findings reveal moderate interdependence, with an increase during the pandemic. Short- and long-term factors are equally significant in this connectedness. All volatility indices are volatility transmitters, while energy markets are recipients. We provide important implications for investors interested in energy markets and aiming at constructing optimal hedging strategies, as well as for policymakers aiming to develop policies to stabilize energy prices and increase the effectiveness of green markets.

Suggested Citation

  • Pinar Evrim Mandaci & Efe Caglar Cagli & Birce Tedik Kocakaya, 2025. "The Effects of Global Volatility Indices on Green and Fossil Energy Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 75(3), pages 277-302, September.
    • Handle: RePEc:fau:fauart:v:75:y:2025:i:3:p:277-302
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F3 - International Economics - - International Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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