Common volatility in clean energy stocks

This study investigates common volatility (COVOL) within the clean energy sector, motivated by the sector’s growing importance and its susceptibility to external shocks. For this purpose, we use the COVOL measure developed by Engle and Campos-Martins (2023) to explore sector-wide and sub-sector common volatility, in a range of sub-sectors including renewable energy, energy storage, energy conversion, power conservation, and greener utilities. Our analysis highlights the major events that significantly impact the volatility of clean energy stocks. These include global economic disruptions, geopolitical tension, policy changes and climate-related events. Other key findings reveal the heterogeneous association of sub-sectors’ COVOL to different economic and financial factors, alongside superior explanatory power of COVOL on clean energy risk and return compared to alternative news-based uncertainty measures. These insights emphasize the importance for investors to integrate thorough risk management strategies and for policymakers to create a stable, supportive environment for the clean energy market. The study’s implications extend to enhancing sector resilience and informing strategic investment and policy decisions, contributing to the sustainable growth of clean energy amidst global economic and environmental uncertainties. • Common volatility (COVOL) within the clean energy sector is investigated. • Both sector-wide and sub-sector COVOL are explored. • Several major events shaking the clean energy’s COVOL are identified. • There is heterogeneous association of subsector COVOL to different factors. • Explanatory powers of COVOL on clean energy risk and return are significant.