Price Leadership and Volatility Linkages between Oil and Renewable Energy Firms during the COVID-19 Pandemic

Abstract

The COVID-19 pandemic is having a strong influence in all areas of society, like wealth, economy, travel, lifestyle habits, and, amongst many others, financial and energy markets. The influence in standard energies, like crude oil, and renewable energies markets has been twofold: from one side, the predictability of volatility has strongly decreased; secondly, the linkages of the price time series have been modified. In this paper, by using DCC-GARCH and Price Leadership Share methodology, we can investigate the changes in the influences between standard energies and renewable energies markets by analyzing one-minute time series of West Texas Intermediate crude oil futures contract (WTI), the Brent crude oil futures contract (BRENT), the STOXX Europe 600 oil & gas index (SXEV), and the European renewable energy index (ERIX). Our results confirm volatility spillover between the time series. However, when assessing the accuracy of the predictability of the DCC-GARCH model, the results show that the model fails its prediction in the period of higher instability. Besides, we found that price leadership has been strongly influenced by the virus spreading stages. These results have been obtained by dividing the period between September 2019 and January 2021 into 6 subperiods according to the pandemic stages.

Multivariate Analysis of Energy Commodities during the COVID-19 Pandemic: Evidence from a Mixed-Frequency Approach

“…Our contribution has been two-fold. On one hand, we extended the current literature on the effects of the COVID-19 pandemic on the energy sector considering six energy commodities (West Texas Intermediate crude oil, Brent crude oil, Heating oil #2, Propane, New York Harbor Conventional Gasoline Regular, and Kerosene-Type Jet Fuel), whereas previous studies mainly focused on oil and natural gas (De Blasis and Petroni 2021;Gil-Alana and Monge 2020;Lin and Su 2021;Narayan 2020;Wang and Su 2021). On the other hand, we employed multivariate GARCH models in the energy sector (Chang et al 2011;Chkili et al 2014;Ku et al 2007;Silvennoinen and Thorp 2013;Yousfi et al 2021) within a risk management setting that, for the first time in this strand of literature, considers time series sampled at mixed-frequency.…”

“…Recently, many contributions investigated the effects of the recent COVID-19 outbreak to understand the real effects of the pandemic on energy commodity returns. For instance, Ghorbel and Jeribi (2021) investigate the interconnections between the volatilities of crude oil, gas, energy index, and financial assets' returns during the COVID-19 pandemic through a Markov Switching multivariate GARCH model; Narayan (2020) evaluates the effect of COVID-19 infections and oil price news on oil prices; Gil-Alana and Monge (2020) study the persistence of the outbreak shock on oil prices; Iyke (2020) and Foglia and Angelini (2020) identify the volatility spillovers between oil and clean energy companies; Gil-Alana and Monge (2020) and Bouazizi et al (2021) study the effect of the pandemic on the volatility of oil returns; , De Blasis andPetroni (2021) study the connected relationship between oil and other energy markets, such as renewables and coal, employing the DCC model. This strand of literature is particularly relevant since it studies both the behavior of energy commodities in the extraordinary and unexpected circumstances of the pandemic, which caused a strong rise in volatility levels, as well as in the unprecedented situation of negative prices.…”

“…Moreover, the mobility restrictions imposed during the first and second COVID-19 waves (Arenas et al 2020;Nouvellet et al 2021;Sadowski et al 2021) shocked the aviation and transportation sectors, which represent 60% of the demand of oil and other commodities, including Propane and Kerosene-Type Jet Fuel used in our analysis (IEA 2020). Previous studies, instead, mainly focus on the effects of COVID-19 on oil and natural gas (De Blasis and Petroni 2021;Gil-Alana and Monge 2020;Lin and Su 2021;Narayan 2020). In particular, Nyga-Łukaszewska and Aruga (2020) investigate the impact of the COVID-19 cases in the US and Japan on the crude oil and natural gas markets by means of Auto-Regressive Distributive Lag approach.…”

Impact of the COVID-19 Pandemic to the Sustainability of the Energy Sector

“…The main results of the research dealing with changes of air quality, investments in renewable energy, energy consumption, energy poverty and energy system flexibility are presented in the following sub-sections. Energy poverty [109,115-119] [46,118] Reliable supply [34,46,120,121] [69,75,78,121-123]…”

“…Wang et al [54] provided policy suggestions for the implementation of freemarket environmentalism in order to achieve the development of more efficient renewables in the post-COVID-19 era. De Blasis and Petroni [120] investigated price and volatility linkages between renewable energy and oil firms during the pandemic. The results of the analysis show that volatility increased in all energy firms, but is stronger for oil firms than for renewable firms.…”