Does clean energy financial market reflect carbon transition risks? Evidence from the NASDAQ clean energy stock volatility

ABSTRACT

Driven by the evident uncertainties associated with clean energy stocks, mainly originating from energy transition risks, this article investigates the effect of carbon price fluctuation on the extent and persistence of risk in the NASDAQ clean energy stock market. Using GARCH and E-GARCH models with exogenous variables, while controlling for technology stock price, the article documents that carbon price significantly positively affects clean energy stock volatility. This suggests that prices rise and fall in carbon emission trading markets are perceived as bad and good news respectively in the NASDAQ clean energy financial market. This finding signifies that investors interested in clean energy stocks should factor in incidents responsible for turbulences in carbon trading markets when evaluating and trying to understand the nature of risk in the NASDAQ clean energy stock market. The significance of this finding is also relevant to policymakers concerned with carbon emission reduction and successful energy transition.

KEYWORDS:

• Energy transition risk
• clean energy stock returns
• carbon market
• technology stock price
• GARCH
• EGARCH
• volatility
• substitutability

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data used in this research will be available at https://doi.org/10.17632/gmwbf74yv9.1 after an embargo period.