SpringerLink
Log in

Geopolitical risk, economic policy uncertainty, and dynamic connectedness between clean energy, conventional energy, and food markets

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

The global financial markets suffered unprecedented shocks, leading to significantly increased uncertainty in the markets due to various economic and financial recessions and geopolitical tensions, resulting in substantial fluctuations in market prices. Therefore, this paper aims to identify the response of the clean energy, conventional energy, and food markets to economic uncertainty and political tension while considering the influence of numerous crises and political conflicts. To achieve this, we employ the DCC-GARCH-based connectedness approach and the quantile-on-quantile model on monthly data spanning from May 2008 to June 2023. The results provide evidence of the sensitivity of dynamic volatility spillovers between financial assets to GEPU and GPR during major economic and financial crises and geopolitical events. Notably, this sensitivity increases significantly during the global financial crisis (GFC), the European debt crisis, Brexit, the US presidential election, the COVID-19 pandemic, and the Russian-Ukrainian war. However, the investigation of the tail dependence structure reveals that the relationship between uncertainties and total volatility connectedness across various market conditions appears to be asymmetric and heterogeneous. Our findings assist policymakers and green investors in designing the most effective policies to mitigate the impact of uncertainties on both conventional and green investments. This is achieved through insightful knowledge about the primary drivers of contagion among these indices, all while not compromising sustainability goals.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Source: https://www.iea.org/reports/world-energy-investment-2023

Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8

Similar content being viewed by others

Data availability

Not applicable.

Notes

  1. For further details on the representation of the DCC-GARCH model, GIRF, and VIRF, please refer to Gabauer (2020).

  2. To save space, we have not included the remaining spillover series, such as TO and FROM, while they are available from the authors upon request.

  3. Dynamic TCI between green energy, WTI, gas, and food indices is presented in Fig. 5a.

Abbreviations

CE:

Clean energy

DCC:

Dynamic conditional correlation

EPU:

Economic policy uncertainty

ERS:

Elliot-Rothenberg-Stock

ETFs:

Exchange-traded funds

FAO:

Food and Agriculture Organization

GARCH:

Generalized autoregressive conditional heteroskedasticity

GEPU:

Global economic policy uncertainty

GFC:

Global financial crisis

GFEVD:

Generalized forecast error variance decomposition

GIRF:

Generalized impulse response function

GPR:

Geopolitical risk

NDS:

Net directional spillover

NPDS:

Net pairwise directional spillover

PBD:

Refers to Invesco Global Clean Energy ETF index

PBW:

Refers to Invesco WilderHill Clean Energy ETF index

QQ:

Quantile-on-quantile

QR:

Quantile regression

SDG:

Sustainability development goals

TAN:

Refers to Invesco Solar Energy ETF index

TCI:

Total Connectedness Index

VIRF:

Volatility impulse response functions

WTI:

West Texas Intermediate

References

  • Adebayo TS, Ullah S (2023a) Formulating sustainable development policies for China within the framework of socioeconomic conditions and government stability. Environ Pollut 328:121673

    CAS  Google Scholar 

  • Adebayo TS, Kartal MT, Ullah S (2023b) Role of hydroelectricity and natural gas consumption on environmental sustainability in the United States: evidence from novel time-frequency approaches. J Environ Manag 328:116987

    CAS  Google Scholar 

  • Adebayo TS, Kartal MT, Ağa M, Al-Faryan MAS (2023c) Role of country risks and renewable energy consumption on environmental quality: evidence from MINT countries. J Environ Manag 327:116884

    Google Scholar 

  • Adekoya OB, Oliyide JA, Yaya OS, Al-Faryan MAS (2022) Does oil connect differently with prominent assets during war? Analysis of intra-day data during the Russia-Ukraine saga. Resour Policy 77:102728

    Google Scholar 

  • Akram R, Ibrahim RL, Wang Z, Adebayo TS, Irfan M (2023) Neutralizing the surging emissions amidst natural resource dependence, eco-innovation, and green energy in G7 countries: insights for global environmental sustainability. J Environ Manag 344:118560

    CAS  Google Scholar 

  • Amar AB, Belaid F, Youssef AB, Chiao B, Guesmi K (2021) The unprecedented reaction of equity and commodity markets to COVID-19. Financ Res Lett 38:101853

    Google Scholar 

  • Antonakakis N, Gupta R, Kollias C, Papadamou S (2017) Geopolitical risks and the oil-stock nexus over 1899–2016. Financ Res Lett 23:165–173

    Google Scholar 

  • Apostolakis GN, Floros C, Gkillas K, Wohar M (2021) Financial stress, economic policy uncertainty, and oil price uncertainty. Energy Econ 104:105686

    Google Scholar 

  • Arif M, Hasan M, Alawi SM, Naeem MA (2021) COVID-19 and time-frequency connectedness between green and conventional financial markets. Global Finance Journal 49:100650

  • Assaf A, Charif H, Mokni K (2021) Dynamic connectedness between uncertainty and energy markets: do investor sentiments matter? Resour Policy 72:102112

    Google Scholar 

  • Boubaker S, Goodell JW, Pandey DK, Kumari V (2022) Heterogeneous impacts of wars on global equity markets: evidence from the invasion of Ukraine. Financ Res Lett 48:102934

    Google Scholar 

  • Boungou W, Yatié A (2022) The impact of the Ukraine-Russia war on world stock market returns. Econ Lett 215:110516

    Google Scholar 

  • Bouras C, Christou C, Gupta R, Suleman T (2019) Geopolitical risks, returns, and volatility in emerging stock markets: evidence from a panel GARCH model. Emerg Mark Financ Trade 55(8):1841–1856

    Google Scholar 

  • Bouzgarrou H, Ftiti Z, Louhichi W, Yousfi M (2023) What can we learn about the market reaction to macroeconomic surprise? Evidence from the COVID-19 crisis. Res Int Bus Financ 64:101876

  • Caglar AE, Daştan M, Rej S (2023a) A new look at China’s environmental quality: how does environmental sustainability respond to the asymmetrical behavior of the competitive industrial sector? Int J Sustain Dev World Ecol 1–13. https://doi.org/10.1080/13504509.2023.2248584

  • Caglar AE, Daştan M, Mehmood U, Avci SB (2023b) Assessing the connection between competitive industrial performance on load capacity factor within the LCC framework: implications for sustainable policy in BRICS economies. Environ Sci Pollut Res 1–18. https://doi.org/10.1007/s11356-023-29178-1

  • Caldara D, Iacoviello M (2022) Measuring geopolitical risk. Am Econ Rev 112(4):1194–1225

    Google Scholar 

  • Cheikh, N. B., & Zaied, Y. B. (2023). Investigating the dynamics of crude oil and clean energy markets in times of geopolitical tensions. Energy Economics 124:106861

  • Chiang TC (2019) Financial risk, uncertainty and expected returns: evidence from Chinese equity markets. China Financ Rev Int 9(4):425–454

    Google Scholar 

  • Chien F, Sadiq M, Kamran HW, Nawaz MA, Hussain MS, Raza M (2021) Co-movement of energy prices and stock market return: environmental wavelet nexus of COVID-19 pandemic from the USA, Europe, and China. Environ Sci Pollut Res 28:32359–32373

    CAS  Google Scholar 

  • Chowdhury MAF, Meo MS, Aloui C (2021) How world uncertainties and global pandemics destabilized food, energy and stock markets? Fresh evidence from quantile on quantile regressions. Int Rev Financ Anal 76:101759

    Google Scholar 

  • Dai PF, **ong X, Liu Z, Huynh TLD, Sun J (2021) Preventing crash in stock market: the role of economic policy uncertainty during COVID-19. Financ Innov 7(1):1–15

    Google Scholar 

  • Das D, Kannadhasan M, Bhattacharyya M (2019) Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike? North Am J Econ Financ 48:1–19

    Google Scholar 

  • Diebold FX, Yilmaz K (2012) Better to give than to receive: predictive directional measurement of volatility spillovers. Int J Forecast 28(1):57–66

    Google Scholar 

  • Diebold FX, Yılmaz K (2014) On the network topology of variance decompositions: measuring the connectedness of financial firms. J Econom 182(1):119–134

    Google Scholar 

  • Dong X, Song L, Yoon SM (2021) How have the dependence structures between stock markets and economic factors changed during the COVID-19 pandemic? North Am J Econ Financ 58:101546

    Google Scholar 

  • Dutta A, Jana RK, Das D (2020) Do green investments react to oil price shocks? Implications for sustainable development. J Clean Prod 266:121956

    Google Scholar 

  • Engle R (2002) Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models. J Bus Econ Stat 20(3):339–350

    Google Scholar 

  • Ferrer R, Shahzad SJH, López R, Jareño F (2018) Time and frequency dynamics of connectedness between renewable energy stocks and crude oil prices. Energy Econ 76:1–20

    Google Scholar 

  • Forsberg L, Ghysels E (2007) Why do absolute returns predict volatility so well? J Financ Economet 5(1):31–67

    Google Scholar 

  • Gabauer D (2020) Volatility impulse response analysis for DCC-GARCH models: the role of volatility transmission mechanisms. J Forecast 39(5):788–796

    Google Scholar 

  • Gu X, Zhu Z, Yu M (2021) The macro effects of GPR and EPU indexes over the global oil market—Are the two types of uncertainty shock alike? Energy Economics 100:105394

  • Guloglu B, Caglar AE, Pata UK (2023) Analyzing the determinants of the load capacity factor in OECD countries: evidence from advanced quantile panel data methods. Gondwana Res 118:92–104

    CAS  Google Scholar 

  • Guo P, Zhu H, You W (2018) Asymmetric dependence between economic policy uncertainty and stock market returns in G7 and BRIC: a quantile regression approach. Financ Res Lett 25:251–258

    Google Scholar 

  • Gupta R, Pierdzioch C (2022) Forecasting the realized variance of oil-price returns: a disaggregated analysis of the role of uncertainty and geopolitical risk. Environ Sci Pollut Res 29(34):52070–52082

    Google Scholar 

  • Ha LT (2023) A wavelet analysis of dynamic connectedness between geopolitical risk and renewable energy volatility during the COVID-19 pandemic and Ukraine-Russia conflicts. Environ Sci Pollut Res 1–16. https://doi.org/10.1007/s11356-023-26033-1

  • He F, Wang Z, Yin L (2020) Asymmetric volatility spillovers between international economic policy uncertainty and the US stock market. North Am J Econ Financ 51:101084

    Google Scholar 

  • Jahanger A, Hossain MR, Awan A, Adebayo TS, Chishti MZ (2023) Linking tourist’s footprint and environmental tragedy through transportation, globalization and energy choice in BIMSTEC region: directions for a sustainable solution using novel GMM-PVAR approach. J Environ Manag 345:118551

    Google Scholar 

  • Just M, Echaust K (2022) Dynamic spillover transmission in agricultural commodity markets: what has changed after the COVID-19 threat? Econ Lett 217:110671

    Google Scholar 

  • Kannadhasan M, Das D (2020) Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach. Financ Res Lett 34:101276

    Google Scholar 

  • Koenker R, Bassett G Jr (1978) Regression quantiles. Econometrica: journal of the Econometric Society 33–50. https://doi.org/10.2307/1913643

  • Li T, Ma F, Zhang X, Zhang Y (2020) Economic policy uncertainty and the Chinese stock market volatility: novel evidence. Econ Model 87:24–33

    Google Scholar 

  • Liu L, Zhang T (2015) Economic policy uncertainty and stock market volatility. Financ Res Lett 15:99–105

    CAS  Google Scholar 

  • Liu Z, Ye Y, Ma F, Liu J (2017) Can economic policy uncertainty help to forecast the volatility: a multifractal perspective. Physica A 482:181–188

    Google Scholar 

  • Liu X, Adebayo TS, Ramzan M, Ullah S, Abbas S, Olanrewaju VO (2023) Do coal efficiency, climate policy uncertainty and green energy consumption promote environmental sustainability in the United States? An application of novel wavelet tools. J Clean Prod 417:137851

    CAS  Google Scholar 

  • Lorente DB, Mohammed KS, Cifuentes-Faura J, Shahzad U (2023) Dynamic connectedness among climate change index, green financial assets and renewable energy markets: novel evidence from sustainable development perspective. Renew Energy 204:94–105

    Google Scholar 

  • Managi S, Yousfi M, Zaied YB, Mabrouk NB, Lahouel BB (2022) Oil price, US stock market and the US business conditions in the era of COVID-19 pandemic outbreak. Econ Anal Policy 73:129–139

    Google Scholar 

  • Mei D, Ma F, Liao Y, Wang L (2020) Geopolitical risk uncertainty and oil future volatility: evidence from MIDAS models. Energy Econ 86:104624

    Google Scholar 

  • Naeem MA, Peng Z, Suleman MT, Nepal R, Shahzad SJH (2020) Time and frequency connectedness among oil shocks, electricity and clean energy markets. Energy Econ 91:104914

    Google Scholar 

  • Nasreen S, Tiwari AK, Eizaguirre JC, Wohar ME (2020) Dynamic connectedness between oil prices and stock returns of clean energy and technology companies. J Clean Prod 260:121015

    Google Scholar 

  • Nguyen TTH, Naeem MA, Balli F, Balli HO, Vo XV (2021) Time-frequency comovement among green bonds, stocks, commodities, clean energy, and conventional bonds. Financ Res Lett 40:101739

    Google Scholar 

  • Nusair SA, Al-Khasawneh JA (2022) Impact of economic policy uncertainty on the stock markets of the G7 Countries: a nonlinear ARDL approach. J Econ Asymmetries 26:e00251

    Google Scholar 

  • Özkan O, Alola AA, Adebayo TS (2023) Environmental benefits of nonrenewable energy efficiency and renewable energy intensity in the USA and EU: examining the role of clean technologies. Sustain Energy Technol Assess 58:103315

    Google Scholar 

  • Püttmann L (2018) Patterns of panic: Financial crisis language in historical newspapers. Available at SSRN: https://ssrn.com/abstract=3156287 or https://doi.org/10.2139/ssrn.3156287

  • Sarker PK, Bouri E, Marco CKL (2023) Asymmetric effects of climate policy uncertainty, geopolitical risk, and crude oil prices on clean energy prices. Environ Sci Pollut Res 30(6):15797–15807

    Google Scholar 

  • Sharif A, Aloui C, Yarovaya L (2020) COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: fresh evidence from the wavelet-based approach. Int Rev Financ Anal 70:101496

    Google Scholar 

  • Sim N, Zhou H (2015) Oil prices, US stock return, and the dependence between their quantiles. J Bank Finance 55:1–8

    Google Scholar 

  • Syed QR, Bouri E (2022) Spillovers from global economic policy uncertainty and oil price volatility to the volatility of stock markets of oil importers and exporters. Environmental Science and Pollution Research 29:15603–15613. https://doi.org/10.1007/s11356-021-16722-0

    Article  Google Scholar 

  • Ullah A, Zhao X, Amin A, Syed AA, Riaz A (2023a) Impact of COVID-19 and economic policy uncertainty on China’s stock market returns: evidence from quantile-on-quantile and causality-in-quantiles approaches. Environ Sci Pollut Res 30(5):12596–12607

    CAS  Google Scholar 

  • Ullah S, Adebayo TS, Irfan M, Abbas S (2023b) Environmental quality and energy transition prospects for G-7 economies: the prominence of environment-related ICT innovations, financial and human development. J Environ Manag 342:118120

    Google Scholar 

  • Umar M, Farid S, Naeem MA (2022a) Time-frequency connectedness among clean-energy stocks and fossil fuel markets: comparison between financial, oil and pandemic crisis. Energy 240:122702

    Google Scholar 

  • Umar Z, Polat O, Choi SY, Teplova T (2022b) The impact of the Russia-Ukraine conflict on the connectedness of financial markets. Finance Research Letters 48:102976

  • Wang X, Li J, Ren X, Lu Z (2022a) Exploring the bidirectional causality between green markets and economic policy: evidence from the time-varying Granger test. Environ Sci Pollut Res 29(58):88131–88146

    Google Scholar 

  • Wang Y, Wei M, Bashir U, Zhou C (2022b) Geopolitical risk, economic policy uncertainty and global oil price volatility—an empirical study based on quantile causality nonparametric test and wavelet coherence. Energ Strat Rev 41:100851

    Google Scholar 

  • Yousfi M, Bouzgarrou H (2023) Financial contagion among stock markets and portfolio risk during the COVID-19 crisis. Int J Monetary Econ Finance 16(2):121–138

    Google Scholar 

  • Yousfi M, Dhaoui A, Bouzgarrou H (2021a) Risk spillover during the COVID-19 global pandemic and portfolio management. J Risk Financ Manag 14(5):222

    Google Scholar 

  • Yousfi M, Zaied YB, Cheikh NB, Lahouel BB, Bouzgarrou H (2021b) Effects of the COVID-19 pandemic on the US stock market and uncertainty: a comparative assessment between the first and second waves. Technol Forecast Soc Chang 167:120710

    Google Scholar 

  • Yousfi M, Brahim M, Farhani S, Bouzgarrou H (2023a) Revisiting the relationship between business conditions, climate policy uncertainty, and environmental pollution: evidence from the USA. Environ Sci Pollut Res 30(41):94334–94346

    Google Scholar 

  • Yousfi M, Zaied YB, Tliche Y (2023b) US stock market and cryptocurrencies during the COVID-19 pandemic outbreak. Crises and Uncertainty in the Economy. Springer Nature Singapore, Singapore, pp 171–186

    Google Scholar 

  • Youssef M, Mokni K, Ajmi AN (2021) Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter? Financ Innov 7(1):1–27

    Google Scholar 

  • Zhao X, Mohammed KS, Wang Y, Stępień P, Mentel G (2023) Effect of geopolitical risk and economic uncertainty indices on renewable energy. Geoscience Frontiers 101655. https://doi.org/10.1016/j.gsf.2023.101655

Download references

Author information

Authors and Affiliations

  1. Higher Institute of Commercial Studies of Sousse (IHEC Sousse), University of Sousse, Sousse, Tunisia

    Mohamed Yousfi

  2. Higher Institute of Finance and Taxation of Sousse (ISFFS), University of Sousse, Sousse, Tunisia

    Houssam Bouzgarrou

Authors
  1. Mohamed Yousfi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Houssam Bouzgarrou
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

MY: introduction, literature review, data, descriptive statistics, and methodology. HB: editing, results, discussion, and conclusion.

Corresponding author

Correspondence to Mohamed Yousfi.

Ethics declarations

Ethics approval

Not applicable.

Consent to participate

Not applicable.

Consent for publication

Not applicable.

Competing interests

The authors declare no competing interests.

Additional information

Responsible Editor: Arshian Sharif

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Yousfi, M., Bouzgarrou, H. Geopolitical risk, economic policy uncertainty, and dynamic connectedness between clean energy, conventional energy, and food markets. Environ Sci Pollut Res 31, 4925–4945 (2024). https://doi.org/10.1007/s11356-023-31379-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-023-31379-7

Keywords

Search

Navigation