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We compare the comovement and spillover between returns of six developed energy markets during different crisis periods using wavelet multiple correlation and wavelet multiple cross-correlation. The considered countries include Canada, France, Italy, Japan, the UK, and the US for a period from July 5, 1999 to July 3, 2021. The results reveal strong correlations between the markets of France, Italy, the US, and the UK across different scales. More specifically, the energy markets of France and Italy show pronounced correlation across lower frequencies, while the energy market of Canada is a prominent net transmitter, with it having the most influence on the connectedness of all other markets. However, the Japanese and Canadian energy markets can provide diversification benefits when combined with other markets. These findings have significant implications for policymakers and investors in terms of how best to invest during various crisis periods. Introduction The global community is facing an ongoing transition from traditional carbon-based energy generation toward more environmentally friendly energy generation. This phenomenon is not limited to any specific sector or industry, with it affecting every facet of life from household consumption to finance and investment. Nevertheless, a complete transition to a de-carbonized economy that will secure an equitable and sustainable future remains a distant prospect. Developments like the COVID-19 pandemic, the oil price crash, trade tensions, political instability, the sovereign debt crisis, and extreme weather events have impeded the transition toward a greener energy infrastructure. Indeed, events like this can deter investment, disrupt supply chains, create a lack of policy certainty, and damage the energy infrastructure. Nevertheless, these events also highlight the importance of investing in resilient energy systems and designing effective policies to mitigate the impact of crises on investment in the energy sector. The last decade has been marked by global events that significantly disrupted global stock markets, causing volatility and uncertainty. These include the Global Financial Crisis (GFC) of 2008–2009, the Eurozone debt crisis of 2009–2014, the oil price crash of 2014, the Brexit referendum vote of 2016, the escalation in trade tensions between the United States and China in 2018, and the outbreak of the COVID-19 pandemic in 2020. More recently, with rising inflation, an energy crisis, the looming threat of recession and the tightening of interest rates, political instability, and the outbreak of the Russia–Ukraine war, 2022 has been no exception. All these events have underlined the need for economic resilience and effective policies to mitigate the impact of such events on global markets and economies in future. The socioeconomic consequences of extreme weather are felt differently across sectors.1 Globally, the outlook appears uncertain, with European governments scrambling to find alternatives to Russian supplies of hydrocarbons. Indeed, there is now less near-term pressure to move to a zero-carbon economy as governments prioritize energy security and affordability.2 A few countries, however, are still committed to accelerating their expansion into renewable energy, with Sweden, Denmark, Switzerland, and New Zealand being among the countries with the greatest level of energy security and progress in the energy transition (World Energy Council, 2022). In contrast, countries with weaker energy security may be forced to choose between sacrificing their long-term GDP growth prospects or delaying the transition to clean energy. According to an IEA World Bank 2020 report, the world may run out of affordable, reliable, sustainable energy by 2030 if efforts are not substantially increased. However, such efforts are more challenging when the global energy landscape is being impacted by increasing market uncertainty. In the longer term, the investment implications of a changing world are profound, although they vary across different economies. For instance, the European and US financial markets had a more pronounced reaction to the pandemic than their Asian counterparts (Shahzad et al., 2020). Furthermore, there was a strong link between the geographical spread of COVID-19 and the degree of financial instability (Albulescu, 2021). For example, Europe, the US, and South Korea witnessed greater volatility than China during the latter phases of the pandemic (Ali et al., 2020). The world presents massive investment opportunities for the transition toward a low-carbon, climate-resilient economy, which is necessary for establishing new energy infrastructure and addressing the increasing risks and challenges presented by climate change. The prevailing investment in renewables highlights the gradual but indispensable transition to a low-carbon economy, and this provides a niche for sustainable finance (Reboredo and Ugolini, 2020, Rehman et al., 2022). Indeed, the tremendous increase in investment in the energy sector in recent years reflects the widespread interest from market practitioners and regulators (Ahmad, 2017, Rezec and Scholtens, 2017, Rehman, 2020, Suleman et al., 2023, Naeem et al., 2023). The interest in investing in energy continues to rise, and so does the size and value of these investments. The market capitalization of listed equities related to climate solutions, including renewable energy and electric vehicles, is now over $3 trillion, accounting for 6% of the total global equity market.3 In addition, the revenue generated from energy products and services has grown annually by 5.4% on average since 2009, substantially more than the 3.4% annual revenue growth rate for all listed equities.4 According to the FTSE Russel report of September 2022, the exposure of energy investments to equity markets has gradually increased over the past decade, rising from 5.1% in 2009 to 6.4% in 2020. Adapting to climate benchmarks, which are investment indices that have been modified to make them consistent with climate goals, can play a crucial role in helping investors to align their portfolios with these targets and monitor the performance of their investments relative to them (Kyritsis and Serletis, 2019). They typically have a well-defined target for reducing carbon emissions, thus encouraging the gradual decarbonization of a portfolio over time. For instance, the EU mandates that climate benchmarks decarbonize at a rate of approximately 7% per year based on the goal of halving carbon emissions by 2030 and reaching net-zero emissions by 2050. This goal aligns with the target of limiting global warming to 1.5 °C with minimal or no overshoot.5 However, achieving a full-scale global transition by 2050 would require a cumulative investment of $109–275 trillion in sustainable energy production. The selection of energy markets in our work is driven by several important factors. Firstly, the growing presence and potential of energy markets to facilitate sustainable investments have made them a subject of significant interest for financial scholars. This shift is further fueled by the impressive growth of low-carbon businesses, which provide attractive investment opportunities in the new energy markets. Secondly, energy markets are highly interconnected and interdependent, which makes them a prime area of study for understanding the behavior of financial markets. Thirdly, the role of energy markets is of utmost importance in ensuring the stability and sustainability of the global economy. It is essential to investigate the resilience of energy markets in the face of different types of crises, to identify their hedging abilities and develop effective policies to mitigate the impact of disruptions on energy investments. The potential for international connectedness among energy markets stems from the growing financialization of traditional stock markets. Although ample evidence indicates the presence of spillover among energy markets, the magnitude of such spillover could be asymmetric. There could also be variations in spillover effects during extreme and normal market states and for different investment horizons. Based on this, the spillover effects across sub-sectors of the overall stock market, including clean energy and sustainability stocks, can be linked to non-financial factors, such as pro-environmental tendencies among investors. Investments in the energy sector seemingly boost the confidence of investors, resulting in favorable valuations on stock markets. These higher valuations can be sustained for as long as trust is maintained, thus providing an incentive for firms to pursue environmentally friendly practices. Indeed, investors have recently shown a greater inclination toward making energy investments (Dutta et al., 2020, Rehman and Vo, 2020). The motivation behind this work is to examine the diversification abilities of developed energy markets in a portfolio during different crisis periods. We aim to provide implications by including energy markets as an investment tool and rebalancing the investment portfolio adhering to varying correlation patterns, especially during times of distress. Therefore, our analysis focuses on examining the return comovement between developed energy markets, as well as comparing energy market returns during different crisis periods, such as the GFC (2008–09), ESDC (2012–14) and the COVID-19 pandemic. By providing valuable insights, our work emphasizes the importance of investing in energy markets which provide better but heterogeneous investment results across different crisis periods and frequencies. Our work is based on the notion that investments in energy markets are increasing rapidly and this presents an avenue for research as well as investment. Nevertheless, these energy markets are susceptible to global crises and are not isolated. Therefore, while we acknowledge the growing importance of green energy and sustainable investments, our primary focus is to understand the impact of different crisis periods of portfolio comprising of energy markets by offering a comparative analysis across normal and major global distress periods during the past two decades. Measuring returns connectedness between major global energy markets is pertinent because it enables market agents to understand the behavior of these equity class and how disruptions in one market affect another markets. Thus, the first contribution of this work is to investigate the potential dependencies between the energy markets of developed countries, something that is important for investors in terms of diversification and policymakers for ensuring the financial stability of energy markets. This matter has attracted increasing attention since the growth of eco-friendly investment in financial markets became a pertinent issue, so it has necessitated an assessment of the potential for greater connectedness among energy-related investments. The existing literature discusses dependence and connectedness between different energy and non-energy assets, such as clean energy, renewables, and other conventional assets (Rehman and Vo, 2020). Nevertheless, the inclusion of such a wide array of assets does not help in assessing the integration among energy assets purely from the perspective of the energy market. Our work therefore not only adds to the existing literature by examining the dependence among energy equities issued in developed countries—it also supplies implications from the perspective of investment in energy securities. A further contribution of this work comes from investigating the effect of the frequent financial and economic disruptions that dynamically affect the global financial system.6 This was undertaken to understand the coherence between energy markets across different investment horizons and explore the behavior of energy stocks during past financial and economic crises. The empirical results in our work focus on four major periods: the full sample (1999–2021), the GFC (2008–2009), the ESDC (2012–2014), and the COVID pandemic (2019–2021). The objective of this study is to offer a comparative analysis of the nature and extent of spillover effects across normal and major global distress periods during the past two decades. Using this approach, we contribute toward the existing literature on energy markets. Although each crisis has unique characteristics, the reason for including these specific crisis periods is two-fold. First, existing research highlights that during crisis periods, financial market behavior tends to be more extreme, resulting in high volatility and market disruptions. As a result, it appears critical to investigate the interconnectivity between returns of energy markets. Secondly, extreme periods are used as benchmarks to assess the resilience of the financial ecosystem and policy interventions. By examining spillover statistics across various market scenarios, we can identify the markets more susceptible to spillover transmission and the frequencies at which such transmission is most potent. Examining the returns integration during these crisis periods for different investment windows will help us in understanding the behavior and pattern of these energy investments and their resistance to contagion. We also raise a pertinent issue that has implications for both investors and economic policymakers: Does investment in the energy sector offer potential benefits, such as increased stability during financial and economic disruptions, or does their inherently risky nature hinder their valuations? In the past, excessive enthusiasm for novel financial concepts, products, and offerings has led to asset price bubbles, which eventually burst and sometimes cause economies to collapse. Such an event would sabotage the global effort to reduce carbon emissions, so it presents an inherent threat to the future climate. It is therefore crucial to investigate whether the risk associated with energy investments varies by region and/or crisis period, and we mainly contribute to this area. Our study therefore explores the nature and pattern of the resilience, if any, to potential threats to energy investments. Our research is of interest to market practitioners and policymakers, so they can assess their risk exposure and develop policies for reducing investment risk in the energy market. The rationale for conducting this study is based on the recent drop in global energy demand during the COVID-19 pandemic, which led to a subsequent collapse in crude oil prices. Furthermore, the recently unstable oil prices and the increasing acceptance of energy investments presents opportunities for prioritizing energy in economic recovery packages and bringing the world closer to achieving the goals of the Paris Agreement (Bloomberg New Energy Finance, 2019). To accomplish our research objectives, we use two different empirical approaches, Diebold and Yilmaz (2012) method and wavelet multi-scale analysis. Our implementation of the former method examines pairwise spillover effects among six global energy markets. Such an analysis enables us to discern the markets that exhibit greater susceptibility to spillover transmission and the frequencies at which such transmission is most potent. This approach also helps in decomposing spillover into transmission and receiving effects as well as gives an expression of the net spillover effect. Secondly, to measure the connectedness between the returns of energy markets, we employ wavelet analysis. We use wavelet multiple correlation (WMC) and cross-correlation techniques (WMCC) to estimate the correlation between energy market pairs across different frequencies and investment horizons which highlight the presence of the heterogeneous nature of returns comovement (Aguiar-Conraria et al., 2008). The application of wavelet using decomposition method is helpful in analyzing correlation behavior between two series across different horizons. For decomposition purpose, maximal overlap discrete wavelet transformation (MODWT) method is used to extract series representing short-, medium- and long-run investment periods. In this way, results employing wavelet methodology present implications for short- and long-run investment periods. Thus, both techniques are useful in analyzing the interdependence between energy markets, serving different purposes. In a nutshell, the Diebold and Yilmaz (2012) model is used to estimate the reception and transmission of spillover between different markets, while the wavelet technique examines the degree of connectedness across different time scales. The findings indicate strong correlations between the energy markets of France, the US, the UK, and Italy at different scales, with France and Italy showing more pronounced correlations at low frequencies. The Canadian energy market is the biggest net transmitter, and it shows the most influential connectedness with all other markets. However, the Japanese and Canadian energy markets offer diversification benefits when combined with other markets. The findings also suggest that there is increased integration among energy markets during extreme market conditions. The remainder of this paper is structured as follows: Section 2 provides an overview of the relevant literature and summarizes previous research findings, while Section 3 discusses the data sources and research methodology used in our study. Section 4 then presents and analyzes the results of our research. Finally, Section 5 draws conclusions for the study and discusses the implications of its findings. Section snippets Literature review The literature about the connectedness between conventional and energy stocks is overwhelming, but among the many studies on this topic, the works of Mensi et al. (2020), Lundgren et al. (2018), and Rehman et al. (2021) explored the interconnectedness and spillover effects between the returns of energy and conventional assets, as well as their connections to market stress. Few studies have examined the risks associated with energy investments, although Schröder (2007), Rezec and Scholtens (2017) Methodology and data (i) Data In order to understand the degree of integration between energy indices, we extracted daily pricing data for six developed countries, namely Canada, France, Italy, Japan, the UK, and the US. These data spanned a period from July 5, 1999 to July 2, 2021, and this comprised a mix of normal and crisis periods caused by events like the bursting of the dot-com bubble, the 2008–2009 Global Financial Crisis, the ESDC debt crisis (2012–2014), and the COVID-19 pandemic that significantly Analysis and discussion The pricing dynamics of the energy indices, as shown in Fig. 1, indicate volatile behavior throughout the period, with fluctuations in prices and returns being particularly pronounced during major economic events, such as the dot-com bubble bursting, the Global Financial Crisis of 2008–09, the oil price crash, and the recent COVID-19 outbreak. The first significant dip can be seen during the dot-com bubble’s collapse (2000–2002) for every energy market except Canada. It is worth mentioning that Conclusion As the landscape of sustainable finance continues to form, it is becoming increasingly important to direct capital at projects that not only align with global climate goals but also offer competitive benefits for companies and countries. Thus, the growing focus on eco-friendly investments in financial markets has highlighted the need to investigate the connectedness between energy-related investments. Indeed, the increasing connectedness between energy investments has recently resulted in a Acknowledgment Princess Nourah bint Abdulrahman University Researchers, Saudi Arabia Supporting Project number ( PNURSP2023R261 ), Princess Nourah bint Abdulrahman University, Riyadh, Saudi Arabia . This research is partly funded by the University of Economics Ho Chi Minh City, Vietnam . References (53) Aguiar-Conraria L. et al. Using wavelets to decompose the time–frequency effects of monetary policy Phys. A (2008) Ahmad W. 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Generalized impulse response analysis in linear multivariate models Econom. Lett. (1998) Pham L. Frequency connectedness and cross-quantile dependence between green bond and green equity markets Energy Econ. (2021) View more references Cited by (0) Recommended articles (6) Research article Connectedness and hedging effects among China's nonferrous metal, crude oil and green bond markets: An extreme perspective Finance Research Letters, 2023, Article 104041 Show abstract The interactions between nonferrous metal and crude oil markets have been wildly discussed in recent years. However, these interaction effects under extreme bearish and bullish market conditions are rarely investigated. This paper aims to quantify not only the extreme connectedness effects between China's nonferrous metal and crude oil futures markets, but also the hedging benefits of green bond on the nonferrous metal and crude oil futures portfolios. 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