Climate change has prompted a global shift towards sustainability, driving increased investments in clean energy sources. This study, published in the journal *Energy Economics*, explores the relationship between clean energy indices and major international stock markets, specifically focusing on the potential of clean energy investments to stabilize portfolios during market fluctuations.
Led by Professor Sang Hoon Kang from Pusan National University, the research team employed a unique method called tail quantile connectedness regression to examine how different financial assets interact, particularly during extreme market conditions. This method allowed them to analyze the impact of shocks from major stock indices like the SP500, FTSE100, and the Renewable Energy and Clean Technology Index (RECTI) on other indices, including Japan’s Nikkei225 and the Global Clean Energy Index (GCEI).
The study found that financial shocks tend to originate in major markets like the US, EU, and UK, as well as from indices like the RECTI, and then flow to markets in Japan and the GCEI. While short-term effects dominate during normal and bull market phases (when stock prices are increasing), the impacts range from intermediate to long-term during declining or busting market states. This highlights the distinct roles of different clean energy indices in the global financial system, showcasing their resilience and lasting influence even in challenging economic climates.
The research further identifies specific roles played by individual clean energy indices in information transmission. The RECTI, for example, tends to be more active, while the Green Bond Index remains relatively isolated. The GCEI, on the other hand, tends to passively receive information. These findings suggest that clean energy investments can serve as hedges or buffers during market fluctuations, promoting financial stability and resilience against economic turbulence.
Professor Kang emphasizes the significance of diversifying investment portfolios with clean energy assets, paired with other financial assets such as WTI and CSI300, to mitigate risks during various market conditions. He concludes by highlighting the long-term impact of the study: increased awareness and understanding of the interconnectedness between these markets can drive policy decisions that support sustainable economic growth and environmental protection, ultimately fostering a more resilient global financial system.
