Time-varying connectedness of decomposed natural gas shocks and clean energy markets: Evidence from R 2 connectedness and wavelet coherence approach

This study introduces decomposed natural gas market shocks, such as supply, demand, and risk shocks. Building on that, this study examines the intricate interconnections between decomposed natural gas market shocks and clean energy sectors by employing the R2 connectedness approach and the wavelet coherency approach. This study reveals a moderate overall connectedness, with contemporaneous spillovers dominating lagged effects. The empirical findings exhibit that natural gas supply shocks emerge as the primary transmitters to clean energy sectors, particularly biofuel and solar, which themselves often act as net shock transmitters. Conversely, wind and geothermal tend to be net recipients along with natural gas demand shocks and natural gas risk shocks. The study also uncovers time variation in connectedness, with spikes during major economic and geopolitical events. Crisis and event-dependent analysis further corroborate the asymmetric shock transmission, with supply-side gas shocks and biofuel as consistent net transmitters and demand shocks and risk shocks as net recipients. Furthermore, wavelet analysis further confirms the connectedness between natural gas market shocks and clean energy sectors. These empirical findings offer insightful practical implications for investors, regulators and firms.