Global Uncertainty and Green Transition: Dynamics Analysis of Stock Market Volatility

Abstract

This study examines the return and volatility dynamics of Indonesia’s Islamic (Jakarta Islamic Index), green/sustainable (SRI Kehati), and conventional (Composite Stock Price Index) stock markets in relation to economic policy uncertainty, trade shocks, monetary conditions, and energy transition factors. Monthly data are analyzed using an integrated ARDL framework to assess both short- and long-term relationships, and a GARCH(1,1) model to evaluate volatility. The results indicate clear market segmentation. Over the long term, green stock returns are highly sensitive to policy uncertainty, trade disruptions, macroeconomic conditions, and inflation, reflecting a strong reliance on policy stability. Islamic stock returns are mainly influenced by interest rates and energy transition factors, whereas conventional stock returns are primarily affected by monetary conditions and are more resilient. In the short term, policy uncertainty causes immediate declines in Islamic stock returns, green stocks respond to trade and liquidity shocks with multiple lags, and conventional stocks maintain stable momentum. All markets exhibit volatility clustering, with green stocks showing the highest volatility persistence, followed by Islamic stocks, while conventional stocks revert to the mean more quickly. These findings underscore the need for consistent energy and economic policies to support green finance and strengthen financial market stability in emerging economies.