Information Linkages and Spillovers in Clean Energy, Fossil Fuels, and the Market

This paper investigates the market linkages and information spillovers between clean energy, fossil fuels, and the market. Under the implications of rational expectation models developed by Fleming, Kirby, and Ostdiek (1998) and Kodres and Pritsker (2002), volatility correlations are necessary to reveal information linkages across markets. To measure these linkages, this paper uses the GMM approach of Fleming et al. (1998) and the implied volatility approach of Wang (2009). Both approaches show that the market has a strong information linkage with clean energy and fossil fuels. However, the market does not share the same information with them. Moreover, structural tests show that the linkages are time-varying. The market has significantly increased its information linkage with the clean energy market since ratifying the Paris Agreement in 2016