Oil price risk and European low carbon company returns: evidence from the DCC-GARCH model

Purpose This study investigates the influence of oil prices on the stock performance of European low-carbon companies, using the STOXX Global Low Carbon Select index as a benchmark. Design/methodology/approach The analysis employs the dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model, utilizing daily data from January 2, 2019, to April 17, 2024. Findings Results reveal a consistent positive relationship between the stock prices of low-carbon companies and oil prices, highlighting the sensitivity of these firms to fluctuations in crude oil markets. Practical implications The findings emphasize the need for further examination of variations within the STOXX Global Low Carbon Select index, offering insights for investors and policymakers navigating the evolving energy transition. Originality/value This research provides a novel contribution by focusing on companies with a low carbon footprint, an area that has received limited attention in prior studies. It enriches the understanding of how oil price dynamics affect the financial performance of low-carbon firms, thereby advancing knowledge on sustainable finance in the context of global climate and energy challenges.