Economic Activity and Energy Markets in the Time of Crisis: Fresh Evidence during COVID-19 Pandemic Using Dynamic Time-Frequency Analysis

International Conference of the Faculty of Economics Brcko (ICFE-BD). East Sarajevo, Bosnia and Herzegovina, 2020

8 Pages Posted: 28 Dec 2020

See all articles by Masnun Al Mahi

Masnun Al Mahi

University of Malaya - Faculty of Business and Accountancy

Shamim Ahmed Khan

School of Business, Monash University Malaysia

Mohammad Zainuddin

Australian National University (ANU)

Ishtiaque Arif

Putra Business School

Date Written: December 2020

Abstract

We investigate dynamics between the economic activities and energy markets – both conventional and clean energy markets, with a sample of daily data from January 01, 2020, to November 25, 2020. We perform wavelet-based time-frequency techniques; we measure the market volatility with continuous wavelet transforms (CWT), co-movement of economic activities, and energy markets using wavelet coherency as well as non-linear phase-difference technique to understand the time-varying causality between different series. Our CWT results show that all three market indices experience significant volatility in the COVID-19 period, notably during the initial period of the outbreak. The market volatilities are comparatively more substantial in the short frequency band than the long frequency, while the latter sustained longer in the markets. Moreover, wavelet coherency results show a strong correlation between the economic activity index and both energy market indices; however, the co-movement is significantly higher for the conventional energy market than the clean energy market. We further detect a positive and bi-directional causality between economic activities and energy market indices. Besides providing fresh and time-varying and frequency-varying variance, correlation and causal relationship between global economic activity and the energy markets, which is currently lacking in the existing literature, our study has significant implications for the heterogeneous market participants in terms of improved price prediction accuracy and policymakers for decision-making during the crisis period.

Keywords: COVID-19, Economic Activity, Energy Markets, Clean Energy, Wavelet Analysis

Suggested Citation

Mahi, Abu Saad Md Masnun Al and Khan, Shamim Ahmed and Zainuddin, Mohammad and Arif, Ishtiaque, Economic Activity and Energy Markets in the Time of Crisis: Fresh Evidence during COVID-19 Pandemic Using Dynamic Time-Frequency Analysis (December 2020). International Conference of the Faculty of Economics Brcko (ICFE-BD). East Sarajevo, Bosnia and Herzegovina, 2020, Available at SSRN: https://ssrn.com/abstract=3755160

Abu Saad Md Masnun Al Mahi

University of Malaya - Faculty of Business and Accountancy ( email )

Faculty of Business and Accountancy
University of Malaya, Lembah Pantai
Kuala Lumpur, 50603
Malaysia

Shamim Ahmed Khan

School of Business, Monash University Malaysia ( email )

Malaysia

Mohammad Zainuddin (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Ishtiaque Arif

Putra Business School ( email )

Selangor Darul Ehsan
Serdang 43400
Malaysia

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