Natural gas and the utility sector nexus in the U.S.: Quantile connectedness and portfolio implications

Son Duy Pham, Thao Thac Thanh Nguyen and Hung Do

Energy Economics, 2023, vol. 120, issue C

Abstract: Given that natural gas is a vital input for the U.S. utility sector, this study empirically investigates the return connectedness between the natural gas and utility stocks in the U.S. market. Using the quantile connectedness approach, we show that the nexus between natural gas and utility stocks is more pronounced at the tails compared to the central of the conditional distribution. The return connectedness indices are time-varying with a net receiver role of natural gas and driven by various macro-variables. Finally, our portfolio implication analyses with alternative tail risk measures suggest that it can be more beneficial for risk-adverse investors to allocate substantial weights into the electricity utility stocks in normal market conditions. However, during the COVID-19- induced recession, it is critical to shift more fund to the natural gas futures to reduce tail risks.

Keywords: Natural gas; Utility stocks; Quantile connectedness; Portfolio allocation; Hedging benefit (search for similar items in EconPapers)
JEL-codes: C58 F31 G11 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323001305

DOI: 10.1016/j.eneco.2023.106632

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