Time-Scale Behaviour of Co-movements Between Renewable Energy Stocks and Other Financial Assets

This paper examines time-frequency co-movements between alternative energy indices and other financial assets, namely, gold, oil, technology equities, oil & gas stocks, the VIX, and bond yields, using wavelet coherence analysis. The main findings show that the linkages are weak in the short run; however, long-term interactions are significantly strong. Our analyses reveal that the renewable energy returns are closely related to those of the technology stocks. Fossil fuel sector has a significant weight in global equity markets, and we find strong positive linkages between oil & gas companies and renewable energy sector, which are more pronounced than the co-movements between oil prices and alternative energy indices. Our results indicate potential diversification benefits of gold, bonds and the VIX for the renewable energy equities as the coherences in the time and scale domain are relatively weak. We further analyse if the cross-market interlinkages significantly change during the COVID-19 pandemic. Our results provide evidence of higher scale-dependent rolling correlations, mostly for long-term investment horizons, in the wake of the pandemic, implying the presence of contagion effects. The results provide important insights for practitioners and scholars in terms of portfolio construction and can enhance the implementation of relevant policies to promote investments in clean energy sector.