Geopolitical risks to renewable energy stock returns?6 answersGeopolitical risks significantly influence renewable energy stock returns, as evidenced by a body of research spanning various aspects of the energy sector and financial markets. Floros et al. have demonstrated that geopolitical tensions can have a measurable impact on green investments, indicating that geopolitical risk is a critical factor for renewable energy financing and development. This is corroborated by Agoraki et al., who found that geopolitical risks negatively affect stock returns, with a substantial decrease in returns following a one-unit standard deviation increase in geopolitical risks.
Renewable energy markets, including sub-sectors, exhibit varying responses to geopolitical risk (GPR) and economic uncertainty indices (EUI), suggesting that renewable energies can serve as a hedge against these risks under certain conditions. However, the impact of geopolitical events on stock returns can differ based on the specific context, such as the North Korean regime's influence on inter-Korean economic cooperation-related firms. The transition to renewable energy, driven by competition for resources essential for renewable technologies, introduces new geo-economic dynamics that could destabilize economies dependent on fossil fuel exports.
The Russo-Ukrainian Conflict highlighted the positive effect of rising oil prices on renewable energy stock returns in China, suggesting that geopolitical conflicts affecting oil prices could indirectly benefit the renewable sector. The COVID-19 pandemic's impact on clean energy stocks further illustrates how global crises, including geopolitical tensions, can influence renewable energy markets. The war in Ukraine in 2022 demonstrated renewable energy markets' resilience, with positive and significant cumulative abnormalities observed in the aftermath.
Literature reviews on the geopolitics of renewable energy have identified both potential security benefits and risks associated with the transition to renewables, including concerns over critical materials and cybersecurity. However, Overland argues against overstating these risks, suggesting that the geopolitical implications of renewable energy's rise may be more nuanced and less dire than some forecasts imply. Collectively, these studies underscore the complex and multifaceted relationship between geopolitical risks and renewable energy stock returns, highlighting the need for nuanced understanding and strategic planning in the face of geopolitical uncertainties.
Geopolitical risks to green stock returns?4 answersGeopolitical risks significantly influence green stock returns, as evidenced by a comprehensive analysis of various studies. The interdependence between geopolitical risk and stock returns is notably pronounced, with geopolitical risk generally reducing stock returns in North-East Asia, highlighting the broader impact geopolitical tensions can have on financial markets. Specifically, in South Korea, corporate stock returns respond negatively to geopolitical risk, particularly for large firms and those with a higher share of domestic investors. This trend is not isolated to Asia; a broader study across 22 countries found that geopolitical risks decrease stock returns significantly, underscoring the global nature of this impact.
The interconnectedness of global stock markets means that geopolitical risks can lead to risk contagion, affecting stock returns worldwide. This is particularly relevant for global geopolitical risks, which have been shown to influence the correlation network of global stock markets, suggesting an asymmetric relationship between geopolitical risk and global stock market correlation. The phenomenon of greenflation introduces new geopolitical risks, particularly for renewable energy investments, exacerbating risks already associated with the energy transition and potentially undermining cooperation between major economies.
Investors face both internal and external geopolitical risks, with diplomacy, propaganda, economic incentives, trade wars, and sanctions being tools that can influence geopolitical landscapes and, by extension, green stock returns. The impact of geopolitical risk on economies of advanced countries further illustrates the broad economic implications of such risks. In the MENA region, geopolitical risk affects return and volatility dynamics, although it does not contribute to return spillovers among financial markets. Finally, geopolitical tensions have a measurable effect on renewable energy investments, indicating that geopolitical risk considerations are crucial for the success of green investments. Collectively, these studies underscore the importance of understanding and managing geopolitical risks to safeguard green stock returns.
Geopolitical risks and oil prices on the development of green investment?5 answersGeopolitical risks and oil prices play crucial roles in shaping the development of green investments. Studies highlight that geopolitical tensions have a significant impact on green investments in both the short and long run, emphasizing the need to consider these risks for successful renewable energy integration. Additionally, the response of green investments in emerging countries to own-market uncertainty, oil-market uncertainty, and external uncertainties like COVID-19 effects has been studied. Findings suggest that green returns are influenced by own-market uncertainty, oil-market uncertainty, and the COVID-19 effect, with evidence of hedging potential against external uncertainties, ultimately improving predictability and economic gains. Moreover, the phenomenon of "greenflation" introduces new geopolitical risks, exacerbating existing challenges associated with the energy transition, potentially leading to competition rather than cooperation in addressing climate change.
How does geopolitical risk affect financial markets?5 answersGeopolitical risk has a significant impact on financial markets. It affects the dependence between Islamic stocks and sukuk, as well as their conventional counterparts, with regional geopolitical risk factors having a stronger influence on conventional stock-bond correlation volatility. Geopolitics can also influence the success of IMF programs in stabilizing economies, leading to increased risk aversion among financial market participants and negative reactions in bond yields, exchange rates, and stock market developments. Global geopolitical risks have an asymmetric relationship with the global stock market correlation network, with quantile-on-quantile regression analysis revealing the impact of geopolitical risk on the connectedness of global stock markets. Geopolitical crises, particularly in the energy sector, have demonstrated the significant impact on the financial capital market, emphasizing the importance of diversification and risk management in investment portfolios. Overall, understanding and managing geopolitical risks are crucial for financial stability, asset allocation, and policy formulation.
How do geopolitical risks affect stock prices?3 answersGeopolitical risks have a negative impact on stock prices. Studies have shown that an increase in geopolitical risks leads to a decrease in stock returns. The magnitude of this effect can range from 10.53% to 42.14% of the sample mean. This negative relationship between geopolitical risks and stock market performance is observed in various countries, including China. The effects of geopolitical risk on stock returns are nonlinear and asymmetric, depending on factors such as time, volatility regimes, and specific stock markets. Geopolitical risk also affects real activity, capital flows, and stock returns, with the threat of adverse geopolitical events having a particularly strong impact. Overall, geopolitical risks have a detrimental effect on stock prices, leading to lower returns and increased market volatility.
What are the implications of energy trade dynamics for geopolitical risk?3 answersEnergy trade dynamics have significant implications for geopolitical risk. The studies show that there is a strong connection between energy markets and geopolitical risk. Geopolitical risk shocks, such as conflicts and tensions, can have an immediate and pronounced effect on energy markets. Geopolitical risk increases the cost of spot charter rates for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers, impacting both companies and countries involved in the liquefied gas trade. Geopolitical events, such as wars and conflicts, can lead to an increase in energy trade volume, while international tension can cause a decline in energy trade. The impact of geopolitics on energy trade is heterogeneous, with different responses depending on the type of event. These findings have implications for policymakers and investors in clean energy markets.
