The COVID-19 storm and the energy sector: The impact and role of uncertainty

Szczygielski, Kuba, Brzeszczyński, Janusz, Charteris, Ailie and Bwanya, Princess (2021) The COVID-19 storm and the energy sector: The impact and role of uncertainty. Energy Economics. p. 105258. ISSN 0140-9883 (In Press)

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Official URL: https://doi.org/10.1016/j.eneco.2021.105258

Abstract

Prior research has shown that energy sector stock prices are impacted by uncertainty. The coronavirus (COVID-19) pandemic has given rise to widespread health and economic-related uncertainty. In this study, we investigate the impact and the timing of the impact of COVID-19 related uncertainty on returns and volatility for 20 national energy indices and a global energy index using ARCH/GARCH models. We propose a novel ‘overall impact of uncertainty’ (OIU) measure, explained using a natural phenomenon analogy of the overall impact of a rainstorm, to gauge the magnitude and intensity of the impact of uncertainty on energy sector returns. Drawing from economic psychology, COVID-19 related uncertainty is measured in terms of searches for information relating to COVID-19 as captured by Google search trends. Our results show that the energy sectors of countries further west from the outbreak of the virus in China are impacted to a greater extent by COVID-19 related uncertainty. A similar observation is made for net energy and oil exporters relative to importers. We also find that the impact of uncertainty on most national energy sectors intensified and then weakened as the pandemic evolved. Additional analysis confirms that COVID-19 uncertainty is part of the composite set of factors that drive energy sector returns over the COVID-19 period although its importance has declined over time.

Item Type: Article
Uncontrolled Keywords: COVID-19, Pandemic, Returns, Volatility, Uncertainty, Energy sector
Subjects: L100 Economics
N300 Finance
N400 Accounting
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Elena Carlaw
Date Deposited: 06 Apr 2021 13:46
Last Modified: 06 Apr 2021 14:00
URI: http://nrl.northumbria.ac.uk/id/eprint/45867

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