 Clean energy deserves to be an asset class: A volatility-reward analysisEconomic Modelling, 2022, vol. 106, issue C Abstract: Despite the increasing significance of clean energy, the sector has not gained its formal status yet as a separate asset class. Instead, individual clean securities are scattered over conventional classes. We examine the reward of grouping clean equities into a separate new class. Using data between 2011 and 2019, we employ portfolio theory to construct a base portfolio of conventional classes and several green portfolios that consist of the base plus different clean energy indexes. We find that this grouping increases the sector's weight and, hence, its significance in the asset allocation. This, in turn, improves the green returns especially post Paris Agreement. As for the sector's uncertainty, we use a STR model to test and measure the impact of volatility on the nonlinear behavior of clean energy ETFs. We find that the sector's implied volatility index (VXXLE) is superior to oil volatility in capturing the cyclicality of clean ETFs. Keywords: Clean energy ETFs; Energy sector volatility; Smooth transition regression; Exogenous transition; Rewards of clean energy; Paris agreement (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:106:y:2022:i:c:s0264999321002856 DOI: 10.1016/j.econmod.2021.105696 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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