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

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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 impact 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 from 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.
Original languageEnglish
Article number105258
JournalEnergy Economics
Early online date2 Apr 2021
DOIs
Publication statusE-pub ahead of print - 2 Apr 2021

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