Dynamic dependence between clean investments and economic policy uncertainty

C. Urom, Hela Mzoughi, Gideon Ndubuisi, K. Guesmi

Research output: Working paper / PreprintWorking paper

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This paper examines how clean investments across different sectors
respond to economic policy uncertainty (EPU) using the NASDAQ OMX Green
Economy sectoral Indexes. We rely on Wavelets and the Cross-quantilogram
techniques to examine the dependence and directional predictability from
EPU to each sector's clean energy stock prices. Our results highlight
evidence in support of strong heterogeneous dependence and directional
predictability of sectoral clean energy returns from EPU across
different market conditions and investment horizons. Second, we employ
the Time-Varying Parameter-VAR (TVP-VAR) model with stochastic
volatility to characterize the level of integration between clean energy
sectors and EPU under different investment horizons. We find that the
level of connectedness is weak in the short-term but becomes stronger in
the medium- and long-term. Nonetheless, we distill some important
heterogeneities in the predictive power of EPU for the different sectors
across different investment horizons. Taken together, our results
demonstrate that the direction and magnitude of the response of clean
energy stock prices to EPU vary across sectors and depend on market
conditions and horizons. This offers diversification benefits to
investors and portfolio managers that may be interested in clean energy
stocks across sectors, market conditions, and horizons.
Original languageEnglish
Publication statusPublished - 15 Aug 2022

Publication series

SeriesUNU-MERIT Working Papers

JEL classifications

  • g10 - General Financial Markets: General (includes Measurement and Data)
  • q42 - Alternative Energy Sources
  • r11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes


  • Economic-policy uncertainty
  • Clean-energy equities
  • Sectoral analysis
  • Time-frequency domains
  • Spillover
  • Directional predictability

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