Novel approaches to model decomposed oil shocks, geopolitical risk, clean and fossil fuel stocks

Abstract

This study examines how oil supply, demand, and risk shocks, along with geopolitical risks, impact the performance of clean and fossil fuel stocks. Using daily data from March 2014 to January 2022, advanced methods like wavelet quantile correlation (WQC), cross-quantilogram (QC), and nonparametric causality-in-quantile (NPCQ) are applied. The results reveal significant volatility linkages between clean and fossil fuel stocks, with oil shocks and geopolitical risks influencing financial markets. Demand and risk shocks act as transmitters, while supply and geopolitical risks are receivers of spillovers. Clean energy stocks are net transmitters of spillovers, while fossil fuel stocks show mixed profiles. Fossil fuel stocks act as safe havens in the medium term, while clean energy stocks exhibit this in the long term. Geopolitical risks have little effect on clean energy stocks, indicating their resilience. The study highlights the importance of real-time monitoring for managing market fluctuations.