Rare earth markets and clean energy : connectedness and the impact of COVID-19 outbreak

Abstract

In this research paper, we will study the connectedness between rare earth market and renewable energy stocks before and after Covid-19. Rare earth materials are used in the production of wind turbines, solar panels, and other renewable energy technologies, which can help to reduce our reliance on fossil fuels and decrease our carbon footprint. Thus, to study the relationship between these two markets we have used the Time Varying Parameter (TVP-VAR) and the Vector autoregressive (VAR) models to analyze the connectedness between five different renewable energy indices (SOL, WIN, GEO, DEV, FUEL) and one rare earth index (REMX), from March 31, 2011, to December 21, 2021. Nonetheless, these models will help us identify the net receivers and transmitter of shocks between the indices through different time periods and conditions. Throughout the study we divided our analysis: at first, we analyzed the relationship between the REMX index and the clean energy indices throughout the whole period and then we divided our analysis for before and after COVID-19 period. We report that the TCI between renewable energy and rare earths increased significantly as a result of COVID-19. While the clean energy stocks are net receivers of return and volatility spillovers, the rare earths serve as net transmitters of both; even though these results different from after detailed analyzation for before and after the pandemic; There is no doubt that the rare earth market and clean energy stocks are interrelated.