How do renewable and non-renewable co-move? Fresh evidence from the European energy market via ARJI-GARCH copula model

The global energy crisis and rising climate concerns are encouraging the transition to a more sustainable economy. Monitoring energy prices has become increasingly important for analysts, policymakers and businesses to tackle the current situation by increasing the integration of renewable energy sources, strengthening the resilience of the energy system to price shocks and reducing its dependence on fossil fuel imports, as well as improving the affordability of energy for consumers. We set up a copula-based ARJI-GARCH model to investigate the timevarying and non-linear dependence between renewable and non-renewable asset prices in the European energy market. Our results show that the ARJI-GARCH specification is able to provide reliable forecasts and an effective tail risk assessment for the energy sector returns. We then use the ARJI-GARCH forecasts to analyse the co-movement structure of renewable and non-renewable energy asset prices by applying and comparing different copula specifications.