Author(s)

NIYAZI BERK, DINA CAKMUR YILDIRTAN, SELIN SARILI

Abstract

This study examines the dynamic relationships between return differentials of traditional and clean energy stock indices. The analysis employs the nonlinear autoregressive distributed lag model (NARDL) using return differentials between the Nasdaq Composite Index and the Nasdaq Clean Edge Green Energy Index, as well as between the Morgan Stanley Capital International All Country World Index (MSCI ACWI) and the S&P Global Clean Energy Index. Monthly data spanning from January 2014 to January 2024 are utilised. Findings illustrate the impacts of crude oil prices, average temperatures, gold prices and real risk-free rates on return differentials. For model selection at a significance level of 5%, a model including trend and intercept terms was preferred using the stepwise regression criterion. Diagnostic tests confirm the adequacy of model specifications and validate that error term assumptions were not violated. According to NARDL model results, a statistically significant long-term cointegration relationship is found between relative performance of clean energy index return and average temperatures, crude oil prices, real risk-free rates and gold prices. The Wald test reveals asymmetric relationships between crude oil prices and return differentials in both models. According to the model results, an increase in crude oil prices positively affects the returns of the clean energy index, whereas a decrease in crude oil prices reduces the relative performance of the clean energy index. Positive deviations in average temperatures decrease the relative performance of the clean energy index, whereas negative deviations increase its relative performance. Moreover, an increase in gold prices enhances the relative performance of the clean energy index. Robustness checks of the methodology were conducted, confirming the stability of the coefficients. The CUSUM test results also indicate that the coefficients maintain their stability in the long term.

Keywords

clean energy index, NARDL, co-integration, relative performance