Oil Prices and the Renewable Energy Sector

Energy security, climate change, and growing energy demand issues are moving up on the global political agenda, and contribute to the rapid growth of the renewable energy sector. In this paper we investigate the effects of oil price shocks, and also of uncertainty about oil prices, on the stock returns of clean energy and technology companies. In doing so, we use monthly data that span the period from May 1983 to December 2016, and a bivariate structural VAR model that is modified to accommodate GARCH-in-mean errors, and it is used to generate impulse response functions. Moreover, we examine the asymmetry of stock responses to oil price shocks and compare them accounting for oil price uncertainty, while effects of oil price shocks of different magnitude are also investigated. Our evidence indicates that oil price uncertainty has no statistically significant effect on stock returns, and that the relationship between oil prices and stock returns is symmetric. Our results are robust to alternative model specifications and stock prices of clean energy companies

How Does Stock Market Volatility React to Oil Shocks?

We study the impact of oil price shocks on U.S. stock market volatility. We derive three different structural oil shock variables (i.e. aggregate demand, oil-supply, and oil-demand shocks) and relate them to stock market volatility, using bivariate structural VAR models, one for each oil price shock. Identification is achieved by assuming that the price of crude oil reacts to stock market volatility only with delay. This implies that innovations to the price of crude oil are not strictly exogenous, but predetermined with respect to the stock market. We show that volatility responds significantly to oil price shocks caused by sudden changes in aggregate and oil-specific demand, while the impact of supply-side shocks is negligible