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<p>This study investigates the influence of investor sentiment on the tail-risk connectedness between Circular Economy (CE) sectors and energy markets over the period December 2016 to March 2025. Employing a multi-method approach—combining tail-risk metrics, Conditional Autoregressive Value at Risk (CAViaR), quantile-based connectedness measures, cross-quantilogram analysis, and quantile Granger causality tests—we capture both the intensity and direction of volatility spillovers across different market regimes. Results reveal that connectedness is asymmetric and becomes intensified under extreme conditions, with bearish states predominantly shaping the spillover structure. CE sectors consistently act as net transmitters of risk, particularly under extreme bearish and bullish conditions, while fossil fuel and clean energy markets predominantly function as net receivers, absorbing shocks. Investor sentiment significantly shapes these dynamics: pessimism amplifies cross-market spillovers, intensifying systemic risk, whereas optimism reduces interconnectedness, temporarily decoupling markets. Practically, these findings inform investors on the importance of regime-dependent hedging strategies and guide policymakers in incorporating sentiment indicators into macroprudential monitoring. Socially, the study underscores the resilience of CE sectors and their role in advancing a low-carbon, resource-efficient economy.</p>

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At the Edge of Transition: The Influence of Investor Sentiment On Tail-Risk Connectedness Between Circular Economy and Energy Markets

  • 期刊论文

  • 发表日期：

    2026年5月19日

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  • Houssem Eddine Belghouthi

摘要

This study investigates the influence of investor sentiment on the tail-risk connectedness between Circular Economy (CE) sectors and energy markets over the period December 2016 to March 2025. Employing a multi-method approach—combining tail-risk metrics, Conditional Autoregressive Value at Risk (CAViaR), quantile-based connectedness measures, cross-quantilogram analysis, and quantile Granger causality tests—we capture both the intensity and direction of volatility spillovers across different market regimes. Results reveal that connectedness is asymmetric and becomes intensified under extreme conditions, with bearish states predominantly shaping the spillover structure. CE sectors consistently act as net transmitters of risk, particularly under extreme bearish and bullish conditions, while fossil fuel and clean energy markets predominantly function as net receivers, absorbing shocks. Investor sentiment significantly shapes these dynamics: pessimism amplifies cross-market spillovers, intensifying systemic risk, whereas optimism reduces interconnectedness, temporarily decoupling markets. Practically, these findings inform investors on the importance of regime-dependent hedging strategies and guide policymakers in incorporating sentiment indicators into macroprudential monitoring. Socially, the study underscores the resilience of CE sectors and their role in advancing a low-carbon, resource-efficient economy.