Dynamics of extreme spillovers between clean energy stocks and fossil fuels: The role of climate policy uncertainty and geopolitical risks

Abstract

The study examines the effect of climate policy uncertainty and geopolitical risk on the intermarket spillovers among clean energy stocks and fossil fuels. Based on US data between December 2000 and August 2023, we first analyse volatility spillovers among clean energy stocks and fossil fuels using the TVP-VAR model. Our empirical analyses demonstrate that there is strong connectedness between clean energy stocks and fossil fuels. Notwithstanding, we observe that the spillovers among fossil fuels (crude oil, diesel, jet fuel etc.) are stronger than the intermarket spillovers between these energy commodities and the clean energy stock market. Furthermore, using the causality-in-quantiles and Quantile-on-Quantile regression techniques, we find that both climate policy uncertainty and geopolitical risk have a formidable impact on clean energy stock and fossil fuel intermarket spillovers. Moreover, the effects among these phenomena are heterogeneous across each of their distributions. These findings constitute important information for investment practitioners and policymakers. • Examining the effect of CPU and GPR on clean energy stocks -fossil fuel spillovers. • There are strong intermarket spillovers between clean energy stocks and fossil fuels. • CPU and GPR significantly influence intermarket spillovers between clean energy stocks and fossil fuels. • CPU and GPR significantly impact clean energy stock-fossil fuel intermarket spillovers across various variable distributions.