City Research Online

Abstract

This thesis investigates the impact of oil price shocks and uncertainty on economic stability, financial market interconnectedness and diversification opportunities in the context of ongoing global energy transition. Geopolitical fragilities, climate policy shifts and intensified volatility in fossil fuel markets have serious implications for the global energy landscape and economic resilience of resource-oriented countries. While serving as a catalyst for decarbonisation, these developments reshape economic outcomes and financial market dynamics, prompting the need for developing a broader perspective of the emerged realities.

The first essay investigates the macroeconomic effects of oil price shocks in the resource-abundant country of Azerbaijan. The vector autoregression (VAR) model, coupled with cointegration analysis, reveals a significant impact of oil prices on output growth. The shocks are transmitted to the real economy primarily through the fiscal channel, whereas monetary factors emerge as key contributors to the short-run economic activity. Impulse response analysis further demonstrates a rapid but short-lived response of most variables to oil price shocks. The second essay is focused on a time-varying connectedness and return spillovers between oil market, green bonds, and clean energy stocks. Applying the vector autoregression-dynamic conditional correlation-generalised autoregressive conditional heteroskedasticity (VAR-DCC-GARCH) framework and the Granger causality test to the daily asset returns, we document a positive correlation between oil and clean energy indices, yet the inter-market connectedness is not confirmed for green bonds and the former. A unidirectional causality running from oil to clean energy stocks is also detected. The Kolmogorov-Smirnov test, in turn, provides evidence of contagion across all green assets following the US reinforced commitment to the Paris Climate Agreement. Nevertheless, the event induced no structural changes in the co-movement between oil and clean energy assets. Finally, the third essay explains the role of climate policy and geopolitical uncertainty in shaping a dynamic co-movement among clean energy stocks, energy metals, and cryptocurrency. Using a dynamic conditional correlation-mixed data sampling (DCC-MIDAS) model, we find a time-varying interconnectedness among the underlying assets that intensifies under conditions of heightened uncertainty. While critical metals and Bitcoin exhibit marginal risk-mitigating capacity for green equity on average, the regime-specific analysis uncovers contrasting patterns. The hedging performance of the metals improves modestly amid elevated climate policy uncertainty but deteriorates under high geopolitical risk. Conversely, an enhancement in Bitcoin’s effectiveness is observed during periods of escalating geopolitical instability. The collective findings presented in the thesis offer further insights for policymakers and investors navigating global shocks.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Faculty of Finance Doctoral Theses

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