Energy firms in China towards resilience: A dynamic quantile connectedness approach

Abstract

Α comprehensive understanding of the energy and technology sectors is imperative for the implementation of effective climate and industrial policies. This study investigates the quantile interconnectedness between the top five energy equities and the top five technology equities, listed on the Shanghai Stock Exchange 50 Index (SSE50), based on market capitalization. Employing the Quantile VAR methodology, we uncover significant interconnectedness across various quantiles of the return distribution for both energy and technology equities. This implies that price fluctuations within one sector can have a significant effect on the other. Furthermore, our analysis reveals directional connectedness, where energy equities consistently influence technology equity prices throughout the entire period of investigation. Additionally, a heightened degree of interconnectedness is observed during periods of extreme market movements, i.e. in the upper and lower tails of the return distribution. This suggests a more integrated system during stressed conditions, where all equities under investigation exhibit a magnified influence on each other, potentially leading to amplified volatility spillovers. These findings provide valuable insights for investors, portfolio managers, and policymakers, enabling them to develop more informed investment strategies and construct robust risk management frameworks.