Frequency Volatility Connectedness and Portfolio Hedging of U.S. Energy Commodities

Evžen Kočenda, Michala Moravcová and Evžen Kocenda
Authors registered in the RePEc Author Service: Evžen Kočenda

No 10889, CESifo Working Paper Series from CESifo

Abstract: We analyze (frequency) connectedness and portfolio hedging among U.S. energy commodities from 1997 to 2023. We show that the total connectedness increased over time, likely due to the increasing financialization of energy commodities. It fluctuates with respect to (i) different investment horizons and (ii) different periods of distress. The early stage of the Russia-Ukraine war is associated with the highest systemic risk, followed by the Covid-19 pandemic and global financial crisis (GFC). In the frequency domain, the results imply that investors perceive the greatest risk at longer investment horizons, particularly during the three major distress periods. We also show that despite it is difficult and more costly to diversify an energy portfolio during distress periods, adding natural gas seems to bring non-marginal diversification benefits.

Keywords: connectedness; volatility spillovers; frequency decomposition; portfolio weights and hedge ratios; energy commodities; distress (search for similar items in EconPapers)
JEL-codes: C58 F65 G15 Q34 Q41 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cis, nep-ene, nep-inv and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Frequency volatility connectedness and portfolio hedging of U.S. energy commodities (2024)
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