The Effect of War Risks on the Petroleum and Petrochemical and Renewable Energy Industries: Evidence from Chinese Stock Market

Abstract

This study explores the ramifications of war risks (Russo-Ukrainian Conflict specifically) on petroleum and renewable energy industries. Based on the stylized fact that war leads to spikes in oil prices, vector autoregressive (VAR) and autoregressive moving average-generalized autoregressive conditional heteroskedasticity (ARMA-GARCH) model analyses were conducted to evaluate stock return and volatility, respectively, in both sectors resulting from the change in Brent crude oil prices. The data in this study primarily encompasses Brent crude oil prices and the stock index for renewable energy and petroleum products in China. While the result of the VAR model analysis suggests that the increasing oil price has led to a positive effect on stock return for renewables and a trifling impact on stock return for petroleum products, the ARMA-GARCH model indicates that the change in Brent crude oil prices has exerted a negligible effect on stock volatility in both sectors. The positive stock return in the renewable energy sector caused by the increasing oil prices may incentivize more investors and promote the development of renewables in China. The government will also likely promulgate relevant policies to avert the risk of energy supply uncertainties and expedite the energy transition.