# Nonlinear and Heavy-Tailed Predictability in Transition-Energy Financial Markets

arXiv: https://arxiv.org/abs/2605.26890 · HTML: https://mlsanity.com/paper/2605.26890/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Builds on 2 of its 20 references that are in the map.
- First posted on arXiv 26 May 2026.

## Builds on (most cited first, 2 of 2)

- [Learning Phrase Representations using RNN Encoder-Decoder for Statistical Machine Translation](https://mlsanity.com/paper/1406.1078/) (2014)
- [Predictive Accuracy versus Interpretability in Energy Markets: A Copula-Enhanced TVP-SVAR Analysis](https://mlsanity.com/paper/2601.19321/) (2026)

## Abstract (arXiv)

Transition-related financial markets are increasingly exposed to abrupt repricing episodes, elevated volatility, and heterogeneous macro-financial shocks. Under such conditions, conventional Gaussian-linear forecasting frameworks may provide an incomplete representation of the dependence structure linking fossil-energy, renewable-energy, technology, and utility-sector assets. This paper investigates whether transition-related financial returns exhibit residual non-linear predictability after controlling for heavy-tailed multivariate linear dynamics. To address this question, we develop a hybrid forecasting framework combining Student-t Vector Autoregressions with nonlinear recurrent residual learning architectures. The empirical analysis considers six major exchange-traded funds representing broad equity markets and key transition-sensitive sectors. The results reveal substantial departures from Gaussian-linear behavior, including excess kurtosis, volatility clustering, and remaining nonlinear dependence after econometric filtering. Out-of-sample forecasting experiments show that the proposed framework consistently improves predictive accuracy relative to conventional VAR models, standalone machine-learning methods, and alternative hybrid specifications. The forecasting gains become more pronounced during periods of macro-financial stress, particularly during the COVID-19 crisis and the Ukraine-related energy shock. Overall, the findings suggest that transition-related financial systems exhibit regime-sensitive and heavy-tailed predictive dynamics that are insufficiently captured by standard Gaussian-linear models alone.