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

Szczygielski, Jan Jakub; Brzeszczyński, Janusz; Charteris, Ailie; Bwanya, Princess Rutendo

Authors

Jan Jakub Szczygielski

Janusz Brzeszczyński

Ailie Charteris

Princess Rutendo Bwanya



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 magnitude 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 upon 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.

Citation

SZCZYGIELSKI, J.J., BRZESZCZYŃSKI, J., CHARTERIS, A. and BWANYA, P.A. 2022. The COVID-19 storm and the energy sector: the impact and role of uncertainty. Energy economics [online], 109, article 105258. Available from: https://doi.org/10.1016/j.eneco.2021.105258

Journal Article Type Article
Acceptance Date Mar 21, 2021
Online Publication Date Apr 2, 2021
Publication Date May 31, 2022
Deposit Date Mar 30, 2023
Publicly Available Date Mar 28, 2024
Journal Energy economics
Print ISSN 0140-9883
Electronic ISSN 1873-6181
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 109
Article Number 105258
DOI https://doi.org/10.1016/j.eneco.2021.105258
Keywords COVID-19; Overall impact of uncertainty (OIU) measure; Stock returns; Stock return volatility; Uncertainty; Energy sector
Public URL https://rgu-repository.worktribe.com/output/1893449
Related Public URLs https://rgu-repository.worktribe.com/output/1925299 (Dataset)
Additional Information A pre-print version of this was available on SSRN from 01.04.2021:
SZCZYGIELSKI, J., BRZESZCZYNSKI, J., CHARTERIS, A. and BWANYA, P. 2021. The COVID-19 storm and the energy sector: the impact and role of uncertainty. Energy Economics, Forthcoming, Available at SSRN: https://doi.org/10.2139/ssrn.3816893

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