Exploring the interconnectedness of China's new energy and stock markets: A study on volatility spillovers and dynamic correlations

2024-01-02
Exploring the interconnectedness of China's new energy and stock markets: A study on volatility spillovers and dynamic correlations
Autoriai:dr. Zhiyang ShenEKVIGuangchen Li Malin Song Weixian Wei

Abstract

 

In its efforts to achieve carbon peak and carbon neutrality, China has focused on new energy as a key driver, with significant implications for China’s new energy and stock markets. However, few studies have examined the relationship between the two markets. Based on multivariate generalized autoregressive conditional heteroskedasticity models, we investigate the volatility spillovers and dynamic correlations between China’s new energy and stock markets using daily data  from 2009 to 2023. And we also explore how these dimensions changed during the financial crisis  in 2015 and the COVID-19 period. Our findings indicate that there are bidirectional volatility  spillovers and asymmetric effects between these markets, suggesting that risks can accumulate  and negative shocks may have greater impacts than positive ones. These findings are still robust  after changing the distribution of the error term and excluding the impact of COVID-19. Significantly,  volatility spillovers between markets increased and asymmetric effects disappeared  during the two events due to the extreme turbulence in the stock market. Additionally, we find  that the two markets exhibit high interdependence, implying the existence of risk synergy effects  and limited possibilities for portfolio diversification. Finally, our analysis of the marginal expected  shortfall indicates that losses in China’s new energy market increased during the financial  crisis in 2015, implying that this strategic market is more exposed to the negative shocks of the  stock market. These results are valuable to policymakers, investors, and companies involved in  China’s new energy market.

 

Li, G.; Shen, Z.Y.; Song, M.; Wei, W. 2024. Exploring the interconnectedness of China’s new energy and stock markets: A study on volatility spillovers and dynamic correlations. International review of economics and finance : Elsevier. ISSN 1059-0560. 89, p. 471–484. DOI: 10.1016/j.iref.2023.10.030. [Scopus; Science Citation Index Expanded (Web of Science)].

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