Climate change, renewable energy, and Gulf Cooperation Council stock market dynamics: A quantile vector autoregression and wavelet quantile framework

Abstract

The Gulf Cooperation Council region's heavy reliance on oil revenue presents unique challenges and opportunities in transitioning to a sustainable economic model. This study employs quantile vector autoregression and wavelet quantile correlation techniques to explore the intricate relationships between climate change, renewable energy, and market returns in the region from August 29, 2014, to December 2023. Our findings reveal that Saudi Arabia, the United Arab Emirates, and Kuwait, serve as net influencers across various economic conditions, emphasizing their critical role in shaping regional dynamics. These economies exhibit resilience during extremely negative conditions, with positive net values indicating their capacity to absorb shocks. In contrast, smaller economies, such as Oman and Bahrain, demonstrate increased vulnerability. Interestingly, the renewable energy index exhibits a slight stabilizing effect during downturns, whereas temperature fluctuations have a significant impact on economic performance, indicating a broader environmental influence on it. The total Connectedness Index consistently remains high across quantiles, underscoring the rapid transmission of economic shocks and benefits within the region. These results highlight the interconnectedness of these economies, revealing that both risks and advantages are swiftly disseminated throughout the region, particularly during times of crisis or exceptional growth. This study provides policymakers, investors, and stakeholders in the region with valuable insights, contributing to a deeper understanding of how climate change and renewable energy initiatives are influencing financial markets.