How does the Russian-Ukrainian war change connectedness and hedging opportunities? Comparison between dirty and clean energy markets versus global stock indices

The unexpected Russian invasion of Ukraine created greater uncertainty about unrestricted access to fossil commodities. Therefore, in response to the growing challenges of energy security and climate change, renewable energy could open up new energy sources and investment opportu-nities for market participants. The main goal of this research is to investigate the volatility spillovers of dirty and clean energy markets versus global stock indices, in situations of rising geopolitical risk. To reveal crucial changes in shock transmission during the period from August 1, 2014 to May 27, 2022, we used volatility connectedness indices based on the novel method-ology proposed by Diebold and Yilmaz (2012, 2014, 2015), as well as structural breaks. Furthermore, our study investigates the advantages and disadvantages of heterogeneous diver-sification in green energy for hedging strategies. Optimal weights and hedge ratios are calculated for portfolio diversification and risk management. We find that clean energy indices generally show lower risk than global equity markets; however, the cost of hedging in renewable energy assets is higher compared to non-renewable energy indices.