Volatility Impact of Alternative Energy on the U.S. Financial System: A Study of Systemic Stress Periods

This paper quantitatively examines and compares the return and volatility impacts of Alternative Energy (ALTENUS) and United States (U.S.) financial institutions during three periods of systemic stress: the Global Financial Crisis (GFC), the COVID-19 pandemic (COVID-19), and the Russia–Ukraine war (WAR). Using a sample of 18 major banks and non-bank financial institutions in the US, we applied the Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model to estimate financial connectedness between ALTENUS returns and U.S. financial institutions. Our results provide strong evidence of volatility impacts from ALTENUS to all U.S. financial institutions, robust to both banks and non-bank financial institutions. Moreover, our results reveal that this volatility impact is more pronounced during COVID-19 than during the GFC and the war. Additionally, our quantile regression results confirm that changes in the returns of ALTENUS significantly impact the returns of U.S. financial institutions. This study has important implications for risk management, asset pricing, and economic policies.