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Oil price uncertainty and clean energy stock returns: New evidence from crude oil volatility index

Author:
Dutta, Anupam
Source:
Journal of cleaner production 2017 v.164 pp. 1157-1166
ISSN:
0959-6526
Subject:
clean energy, costs and returns, models, oils, petroleum, prices, renewable energy sources, stock exchange, uncertainty, variance
Abstract:
Earlier studies evidence that oil price shocks have significant impacts on clean energy stock returns. While the previous literature uses traditional oil price series to investigate such effects, we aim to assess whether the variance of alternative energy stock returns can be explained using the information content of crude oil volatility index (OVX), an indicator of oil price uncertainty. To serve our purpose, we employ several measures to frame the realized volatility (RV) of alternative energy sector equity returns. In particular, we use three different range-based RV estimators recommended by Parkinson (1980), Rogers and Satchell (1991) and Alizadeh et al. (2002) respectively. Our findings reveal that clean energy stock market returns are highly sensitive to OVX shocks. Thus oil market uncertainty, measured by OVX, embodies a crucial role in modeling the volatility of renewable energy equity returns. In addition, we find a strong indication that OVX provides additional information beyond what is contained in the historical volatilities of equity returns. We also document that the magnitude of the effect of OVX is much bigger than that of the realized variance of WTI oil spot prices. Finally, we find that the information content of crude oil volatility index improves the volatility forecasts for the clean energy equity market.
Agid:
5734760