Co-movement between dirty and clean energy: A time-frequency perspective

In the backdrop of the recent covid-19 pandemic there is a renewed interest to understand the interlinkages between dirty and clean energies. In this regard, the study examines the co-movement structure between clean energy stocks and dirty energies before and during the covid-19 outbreak. The study analyses the interlinkages between the underlying markets by utilizing a vast sample of dirty energies namely crude oil, heating oil, gas oil, gasoline and natural gas, whereas clean energy sector is proxied by S&P Global clean energy index and Wilder Hill clean energy index. We make use of rolling window wavelet approach and wavelet coherence analysis to identify interdependencies between the clean energy stocks and dirty energies. The results exhibit weak linkages between clean energy equities and dirty energies in the short-run, while; we also record few occasions of high comovements among dirty and clean energy markets in the long-run. Noticeably, a distinct decoupling effect persisted between dirty and clean energy markets. In addition, the findings also illustrate that clean energy market is relatively isolated from dirty energies during the recent pandemic crisis, amplifying portfolio diversification benefits across clean and dirty energy markets. The findings of the study hold meaningful insights for investors, policy makers and other market participants in energy financial markets.

Automated summary

In the context of the recent covid-19 pandemic, there is a renewed interest in understanding the relationship between dirty and clean energies. This study examines the co-movement structure between clean energy stocks and dirty energies before and during the covid-19 outbreak using a large sample of dirty energies and clean energy sector proxies. The findings reveal weak linkages between clean energy equities and dirty energies in the short-run, but occasional high comovements in the long-run. There is also a distinct decoupling effect between dirty and clean energy markets, with clean energy being relatively isolated during the pandemic crisis.