Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2017/15: Oil Prices and the Renewable Energy Sector

Evangelos Kyritsis () and Apostolos Serletis ()
Additional contact information
Evangelos Kyritsis: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Apostolos Serletis: Dept. of Economics, University of Calgary, Postal: University of Calgary, Department of Economics, 2500 University Dr. N.W., Calgary, AB, T2N 1N4, Canada

Abstract: Energy security, climate change, and growing energy demand issues are moving up on the global political agenda, and contribute to the rapid growth of the renewable energy sector. In this paper we investigate the effects of oil price shocks, and also of uncertainty about oil prices, on the stock returns of clean energy and technology companies. In doing so, we use monthly data that span the period from May 1983 to December 2016, and a bivariate structural VAR model that is modified to accommodate GARCH-in-mean errors, and it is used to generate impulse response functions. Moreover, we examine the asymmetry of stock responses to oil price shocks and compare them accounting for oil price uncertainty, while effects of oil price shocks of different magnitude are also investigated. Our evidence indicates that oil price uncertainty has no statistically significant effect on stock returns, and that the relationship between oil prices and stock returns is symmetric. Our results are robust to alternative model specifications and stock prices of clean energy companies.

Keywords: Renewable energy; Transition; Oil prices; Uncertainty; GARCH-in-Mean model; Asymmetric responses

JEL-codes: C32; G15; Q42

40 pages, November 14, 2017

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