IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-04794038.html
   My bibliography  Save this paper

The European Renewable Energy Sector in Calm and Turmoil Periods: The Key Role of Sovereign Risk

Author

Listed:
  • Karine Constant

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne)

  • Marion Davin

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier)

  • Gilles de Truchis

    (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne)

  • Benjamin Keddad

    (PSB - Paris School of Business - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université)

Abstract

This paper explores the comparative role of sovereign default risk and several high-frequency macrofinancial indicators that may explain the drop in European renewable energy stocks observed during the 2008 financial crisis and the European debt crisis. We use a two-state time-varying transition probability Markov-switching model to investigate how they impact the bull and bear market trends of renewable stocks. Our main finding is that public financing conditions, captured by sovereign default risks, play a key role in both market regimes, while the other variables affect the renewable energy stocks only in calm or turmoil periods. Moreover, sovereign risk is identified as the main determinant of the European renewable energy stock dynamics in both regimes in the period under review. Finally, we suggest that this effect may be due to the sensitivity of investors to the energy policy uncertainty, entailed by such a pressure on public finances.

Suggested Citation

  • Karine Constant & Marion Davin & Gilles de Truchis & Benjamin Keddad, 2024. "The European Renewable Energy Sector in Calm and Turmoil Periods: The Key Role of Sovereign Risk," Post-Print hal-04794038, HAL.
  • Handle: RePEc:hal:journl:hal-04794038
    DOI: 10.1177/01956574241240293
    Note: View the original document on HAL open archive server: https://hal.science/hal-04794038v1
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04794038v1/document
    Download Restriction: no

    File URL: https://libkey.io/10.1177/01956574241240293?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. John M. Maheu & Thomas H. McCurdy & Yong Song, 2012. "Components of Bull and Bear Markets: Bull Corrections and Bear Rallies," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(3), pages 391-403, February.
    2. Maheu, John M. & McCurdy, Thomas H., 2000. "Volatility dynamics under duration-dependent mixing," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 345-372, November.
    3. Ritzenhofen, Ingmar & Spinler, Stefan, 2016. "Optimal design of feed-in-tariffs to stimulate renewable energy investments under regulatory uncertainty — A real options analysis," Energy Economics, Elsevier, vol. 53(C), pages 76-89.
    4. Reboredo, Juan C. & Rivera-Castro, Miguel A. & Ugolini, Andrea, 2017. "Wavelet-based test of co-movement and causality between oil and renewable energy stock prices," Energy Economics, Elsevier, vol. 61(C), pages 241-252.
    5. Elbert Dijkgraaf & Tom P. van Dorp & Emiel Maasland, 2018. "On the Effectiveness of Feed-in Tariffs in the Development of Solar Photovoltaics," The Energy Journal, , vol. 39(1), pages 81-100, January.
    6. Marcel Aloy & Gilles de Truchis & Gilles Dufrénot & Benjamin Keddad, 2014. "Shift-volatility transmission in East Asian equity markets: new indicators," Post-Print hal-01410782, HAL.
    7. Reboredo, Juan C., 2015. "Is there dependence and systemic risk between oil and renewable energy stock prices?," Energy Economics, Elsevier, vol. 48(C), pages 32-45.
    8. Polzin, Friedemann & Migendt, Michael & Täube, Florian A. & von Flotow, Paschen, 2015. "Public policy influence on renewable energy investments—A panel data study across OECD countries," Energy Policy, Elsevier, vol. 80(C), pages 98-111.
    9. Managi, Shunsuke & Okimoto, Tatsuyoshi, 2013. "Does the price of oil interact with clean energy prices in the stock market?," Japan and the World Economy, Elsevier, vol. 27(C), pages 1-9.
    10. Peter R. Hansen & Asger Lunde & James M. Nason, 2011. "The Model Confidence Set," Econometrica, Econometric Society, vol. 79(2), pages 453-497, March.
    11. Zhongjun Qu & Fan Zhuo, 2021. "Likelihood Ratio-Based Tests for Markov Regime Switching," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 937-968.
    12. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    13. Teixidó, Jordi & Verde, Stefano F. & Nicolli, Francesco, 2019. "The impact of the EU Emissions Trading System on low-carbon technological change: The empirical evidence," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    14. Evangelos Kyritsis & Apostolos Serletis, 2019. "Oil Prices and the Renewable Energy Sector," The Energy Journal, , vol. 40(1_suppl), pages 337-364, June.
    15. Stavros Degiannakis & George Filis & Vipin Arora, 2018. "Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence," The Energy Journal, , vol. 39(5), pages 85-130, September.
    16. Annaert, Jan & De Ceuster, Marc & Van Roy, Patrick & Vespro, Cristina, 2013. "What determines Euro area bank CDS spreads?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 444-461.
    17. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    18. Hofman, Daan M. & Huisman, Ronald, 2012. "Did the financial crisis lead to changes in private equity investor preferences regarding renewable energy and climate policies?," Energy Policy, Elsevier, vol. 47(C), pages 111-116.
    19. Henriques, Irene & Sadorsky, Perry, 2008. "Oil prices and the stock prices of alternative energy companies," Energy Economics, Elsevier, vol. 30(3), pages 998-1010, May.
    20. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
    21. Geraldine Ang & Dirk Röttgers & Pralhad Burli, 2017. "The empirics of enabling investment and innovation in renewable energy," OECD Environment Working Papers 123, OECD Publishing.
    22. Inchauspe, Julian & Ripple, Ronald D. & Trück, Stefan, 2015. "The dynamics of returns on renewable energy companies: A state-space approach," Energy Economics, Elsevier, vol. 48(C), pages 325-335.
    23. Dufrénot, Gilles & Mignon, Valérie & Péguin-Feissolle, Anne, 2011. "The effects of the subprime crisis on the Latin American financial markets: An empirical assessment," Economic Modelling, Elsevier, vol. 28(5), pages 2342-2357, September.
    24. Filardo, Andrew J. & Gordon, Stephen F., 1998. "Business cycle durations," Journal of Econometrics, Elsevier, vol. 85(1), pages 99-123, July.
    25. Kim, Chang-Jin & Piger, Jeremy & Startz, Richard, 2008. "Estimation of Markov regime-switching regression models with endogenous switching," Journal of Econometrics, Elsevier, vol. 143(2), pages 263-273, April.
    26. Azqueta-Gavaldón, Andrés & Hirschbühl, Dominik & Onorante, Luca & Saiz, Lorena, 2023. "Sources of Economic Policy Uncertainty in the euro area," European Economic Review, Elsevier, vol. 152(C).
    27. Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, vol. 34(1), pages 248-255.
    28. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    29. Kumar, Surender & Managi, Shunsuke & Matsuda, Akimi, 2012. "Stock prices of clean energy firms, oil and carbon markets: A vector autoregressive analysis," Energy Economics, Elsevier, vol. 34(1), pages 215-226.
    30. Wüstenhagen, Rolf & Menichetti, Emanuela, 2012. "Strategic choices for renewable energy investment: Conceptual framework and opportunities for further research," Energy Policy, Elsevier, vol. 40(C), pages 1-10.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keddad, Benjamin, 2024. "Asian stock market volatility and economic policy uncertainty: The role of world and regional leaders," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    2. Matteo Foglia & Eliana Angelini & Toan Luu Duc Huynh, 2024. "Tail risk connectedness in clean energy and oil financial market," Annals of Operations Research, Springer, vol. 334(1), pages 575-599, March.
    3. Fahmy, Hany, 2022. "The rise in investors’ awareness of climate risks after the Paris Agreement and the clean energy-oil-technology prices nexus," Energy Economics, Elsevier, vol. 106(C).
    4. Çelik, İsmail & Sak, Ahmet Furkan & Höl, Arife Özdemir & Vergili, Gizem, 2022. "The dynamic connectedness and hedging opportunities of implied and realized volatility: Evidence from clean energy ETFs," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    5. Lyócsa, Štefan & Todorova, Neda, 2024. "Forecasting of clean energy market volatility: The role of oil and the technology sector," Energy Economics, Elsevier, vol. 132(C).
    6. Kocaarslan, Baris & Soytas, Ugur, 2021. "Reserve currency and the volatility of clean energy stocks: The role of uncertainty," Energy Economics, Elsevier, vol. 104(C).
    7. Fernanda Fuentes & Rodrigo Herrera, 2020. "Dynamics of Connectedness in Clean Energy Stocks," Energies, MDPI, vol. 13(14), pages 1-19, July.
    8. Tiwari, Aviral Kumar & Trabelsi, Nader & Abakah, Emmanuel Joel Aikins & Nasreen, Samia & Lee, Chien-Chiang, 2023. "An empirical analysis of the dynamic relationship between clean and dirty energy markets," Energy Economics, Elsevier, vol. 124(C).
    9. Uddin, Gazi Salah & Rahman, Md Lutfur & Hedström, Axel & Ahmed, Ali, 2019. "Cross-quantilogram-based correlation and dependence between renewable energy stock and other asset classes," Energy Economics, Elsevier, vol. 80(C), pages 743-759.
    10. Hemrit, Wael & Benlagha, Noureddine, 2021. "Does renewable energy index respond to the pandemic uncertainty?," Renewable Energy, Elsevier, vol. 177(C), pages 336-347.
    11. Kocaarslan, Baris & Soytas, Ugur, 2019. "Dynamic correlations between oil prices and the stock prices of clean energy and technology firms: The role of reserve currency (US dollar)," Energy Economics, Elsevier, vol. 84(C).
    12. Tareq Saeed & Elie Bouri & Dang Khoa Tran, 2020. "Hedging Strategies of Green Assets against Dirty Energy Assets," Energies, MDPI, vol. 13(12), pages 1-17, June.
    13. Shah, Adil Ahmad & Sahay, Arvind, 2024. "Is gold a preferable diversifier of cleaner equity risk across diverse scenarios? Evidence from multidimensional connectedness and spillover measures," Energy, Elsevier, vol. 305(C).
    14. Asl, Mahdi Ghaemi & Canarella, Giorgio & Miller, Stephen M., 2021. "Dynamic asymmetric optimal portfolio allocation between energy stocks and energy commodities: Evidence from clean energy and oil and gas companies," Resources Policy, Elsevier, vol. 71(C).
    15. Matteo Foglia & Eliana Angelini, 2020. "Volatility Connectedness between Clean Energy Firms and Crude Oil in the COVID-19 Era," Sustainability, MDPI, vol. 12(23), pages 1-22, November.
    16. Tiantian Liu & Shigeyuki Hamori, 2020. "Spillovers to Renewable Energy Stocks in the US and Europe: Are They Different?," Energies, MDPI, vol. 13(12), pages 1-28, June.
    17. Niu, Hongli, 2021. "Correlations between crude oil and stocks prices of renewable energy and technology companies: A multiscale time-dependent analysis," Energy, Elsevier, vol. 221(C).
    18. Sirin, Selahattin Murat & Yilmaz, Berna N., 2024. "Energy transition and non-energy firms’ financial performance: Do markets value capability-based energy transition strategies?," Energy Economics, Elsevier, vol. 136(C).
    19. Donggyu Lee & Jungho Baek, 2018. "Stock Prices of Renewable Energy Firms: Are There Asymmetric Responses to Oil Price Changes?," Economies, MDPI, vol. 6(4), pages 1-8, November.
    20. Cao, Guangxi & Xie, Fei, 2023. "The asymmetric impact of crude oil futures on the clean energy stock market: Based on the asymmetric variable coefficient quantile regression model," Renewable Energy, Elsevier, vol. 218(C).

    More about this item

    Keywords

    renewable energy; sovereign risk; markov-switching model;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-04794038. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.