Will clean energy investments provide a more sustainable financial ecosystem? Less carbon and more democracy

This paper studies the impact of oil prices on financial market volatilities and clean energy investments by including the energy democracy approach to its analysis. Our main intention is to question whether a carbon free sustainable financial market environment. Since crude oil is still the primary energy source and the markets heavily depend on oil prices, any surge in the prices creates uncertainty and increases the fear in the markets. In this study, we contribute to the existing literature in two ways. First, rather than seeking a direct relationship with oil-clean energy returns, we include market fear represented by CBOE volatility index (VIX) to our models. Secondly, we utilize VAR-VECH-TARCH models with three different model systems and two different VAR system specifications for two different time periods. According to our asymmetric volatility model results, long-term volatility spillovers exist between clean energy, brent oil and volatility index. Moreover, considering the cross relationship between clean energy, brent oil and VIX, bad news contributes more to the systemic risk of energy company stock returns than good news. These findings state that the relationship between energy democracy and clean energy investments should be considered in more details while policy implications should support renewable energy investment policies and reduce the pressure of oil suppliers on both financial markets and clean energy investments.

Automated summary

This study examines the impact of oil prices on financial market volatilities and clean energy investments, with a focus on the energy democracy approach in its analysis. Findings reveal long-term volatility spillovers between clean energy, brent oil, and volatility index, as well as the significant contribution of bad news to the systemic risk of energy company stock returns. The results suggest a need to consider the relationship between energy democracy and clean energy investments in more detail, while policy implications should support renewable energy investment policies and alleviate the pressure from oil suppliers on financial markets and clean energy investments.