Navigating Risk Dynamics: Oil Shocks and Green Stock Markets in the Time-Frequency Domain

Abstract

 

In this study, we use wavelet coherence and frequency connectedness techniques to inquire into the time-frequency dependence and risk relationship between oil shocks and green stocks. The results show that the dependent ties between the oil and green stock markets are tighter on medium- and long-term scales, despite the fact that led-lag patterns are varied and time-varying. Over time, the oil and green stock markets are most likely to have complete risk transfers. The green stock market is far more vulnerable to the oil market's risk ripple effects. Global disasters like the COVID-19 pandemic, the collapse of the oil price, and the Great Recession have also contributed to an increase in the overall quantity of risk spillovers. The green stock market as a whole has not fully explored the possibility of increased autonomy from the conventional energy market. Therefore, stakeholders in the energy and financial markets with varying time horizons for asset allocation and risk management, and especially dedicated investors, may find the study of time-frequency dependence and risk spillovers particularly beneficial.