Distributional predictability between oil prices and renewable energy stocks: Is there a role for the COVID-19 pandemic?

Abstract

This research explores the causal relationships between the returns and volatility of oil prices and five clean energy stock indices based on the nonparametric causality-in-quantiles test between October 13, 2010 and September 08, 2020. The analysis is also conducted before and during the COVID-19 pandemic. The findings indicate that over the full and before the pandemic periods, oil returns cause the renewable stock index returns during normal market conditions, but this is not the case in the extreme market conditions. Moreover, all the five renewable energy sectoral stock returns have no predictive power of oil returns under any market conditions. On the other hand, the volatility analysis suggests a significant bidirectional causality between the oil price volatility and the renewable energy stock volatility only at the lower quantiles during the same periods. During the COVID-19 pandemic period, the findings suggest the absence of significant causal relationships between the oil price (returns and volatility) and the renewable energy stocks. However, the causal relationship during the pre-COVID-19 period is close to that reported for the full period. Policy recommendations are therefore proposed based on these results.