Tail risk connectedness in clean energy and oil financial market

Abstract

This research investigates the connectedness and the tail risk spillover between clean energy and oil firms, from January 2011 to October 2021. To this, we use the Tail-Event driven NETworks (TENET) risk model. This approach allows for a measurement of the dynamics of tail-risk spillover for each sector and firm. Hence, we can provide a detailed picture of the existing extreme relationships within these markets. We find that the total connection between the markets varies during the period analysed, showing how the uncertainty in oil price plays a critical role in the risk dynamics for oil companies. Also, we find that relationships between energy firms tend to be intrasectoral; that is, each sector receives (emits) risk from (to) itself. These results can have important practical implications for risk management and policymakers.

Water and Emerging Energy Markets Nexus: Fresh Evidence from Advanced Causality and Correlation Approaches

“…In addition, researchers have begun to use the more advanced Granger causality analysis to analyze the predictability and spillover between water stocks and RWE markets. Water, solar, and wind energy firms' risks are primarily internal to their respective sectors rather than being interrelated [22]. Using the DCC model, Ref.…”

Will a boom be followed by crash? A new systemic risk measure based on right-tail risk

“…In the Tail-Event driven network risk (TENET)-based model ( Härdle et al, 2016 ), we will distinguish between left-tail volatility and right-tail volatility to investigate these issues. Recent research has utilized the TENET model to examine the tail-risk relationship between the stock market, the futures market, and the cryptocurrency market ( Wang et al, 2018 ; Xu et al, 2021 ; Foglia et al, 2022 ; Naeem et al, 2022 ; Wang et al, 2022 ; Yousaf and Yarovaya, 2022 ; Yousaf et al, 2022a , b , c ). This paper modifies the standard TENET model and constructs the LR-EGARCH-TENET model by integrating right-tail information to examine left-tail and right-tail risk and their interaction across sectors.…”