Modeling Comovement and Asynchrony Between Fossil and Clean Energy Markets Under Climate Risks Using Quantile-on-Quantile Connectedness

This paper examines how climate risk shapes the connectedness between fossil and clean energy markets. To do so, we use the quantile-on-quantile connectedness framework and extend it to the frequency domain to capture return and volatility spillovers across different market conditions and horizons. We further employ an autoregressive distributed lag (ARDL) model to assess the effects of physical and transition climate risks on the estimated connectedness structure. The results show that fossil and clean energy markets exhibit both comovement and asynchrony, although comovement is dominant overall. After decomposing connectedness into short-term and long-term components, we find that return spillovers are mainly driven by short-term dynamics, whereas volatility spillovers are mainly driven by long-term dynamics. In addition, climate risks significantly affect the connectedness structure between the two markets, and policy-related risk and global warming risk are particularly important in strengthening asynchronous features. These findings suggest that climate risk influences not only the strength of spillovers, but also the way fossil and clean energy markets interact under different market states.