Time-varying effects of structural fossil energy price shocks and economic policy uncertainty on new energy stock market: new evidence from China

We focus on the Chinese new energy stock market and explore the impacts of structural fossil energy price shocks and economic policy uncertainty (EPU). To this end, we synthesize the prices of three fossil energy sources, decompose the dynamics of fossil energy prices into energy supply shocks (SS), demand shocks (DS) and risk shocks (RS), and run a TVP-SVAR-SV model. Our findings show that SS significantly influence the new energy stock prices (NE) in that DS have a positive short-term impact for most of the sample periods while the mid- and long-term impacts of RS on NE are negative and larger than those of both SS and DS. We also find that in all three categories of shocks, EPU is the most important predictor negatively related to NE, indicating that a stable policy environment is essential to equity financing in the new energy market. Besides, different categories of EPU have varied impacts on NE in that exchange rate policy uncertainty (ERPU) has the most detrimental effect while the impact of trade policy uncertainty (TPU) shows a positive influence. Finally, we discuss the implications of these findings for both market regulators and investors participating in transactions of new energy stock portfolios.