The connectedness between international energy-related uncertainties, economic policy uncertainties, and clean energy markets

Abstract

Energy is an essential element of economic development. In maintaining a stable energy supply, countries worldwide are facing a transition towards cleaner energy sources and technologies. While gains in the usage and promotion of cleaner energy have been made in this pursuit, the transition toward cleaner energy faces obstacles concerning energy-related uncertainties and economic policy uncertainties, hindering investor confidence. This study explores the connectedness between a key element in the energy transition—clean energy stock returns, the energy-related uncertainty index, and the economic policy uncertainty index, using monthly data from 2005 to 2022. In using a quantile spillover approach to assess the dynamic relationship between the variables, the results indicate that in times of volatility within the market, the connectedness between clean energy returns, energy-related uncertainty, and economic policy uncertainty increases. In a less volatile market environment, the results, however, yield that clean energy returns, energy-related uncertainty, and economic policy uncertainty interdependency increase. These results underscore the need to create clean energy investment strategies and informed policy responses amid an increasingly volatile market and geopolitical tensions.