Dynamic Connectedness Among Alternative and Conventional Energy ETFs Based on the TVP-VAR Approach

Joanna Górka and Katarzyna Kuziak ()
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Katarzyna Kuziak: Department of Financial Investments and Risk Management, Wroclaw University of Economics and Business, 53-345 Wrocław, Poland

Energies, 2024, vol. 17, issue 23, 1-29

Abstract: This study investigates risk transmission in the US energy instrument market to determine if certain factors, such as crude oil and natural gas, influence this market and whether stock or energy investment portfolios track their behavior. To investigate volatility spillover, the VAR-based connectedness approach is applied. This approach facilitates the measurement of interdependence across a network of variables, providing insights into aggregate, directional, and net interdependence. The use of the time-varying parameter vector autoregression (TVP-VAR) approach, as developed by Antonakakis and Gabauer, avoids the problems associated with selecting rolling window sizes and the resultant loss of observations during estimations. The analysis revealed a distinction between alternative and traditional ETFs, with lower interdependence observed among the volatility of alternative energy ETFs. While most energy ETFs transmit risk within the systems analyzed, some act as risk receivers, though their net receiving/transmitting character fluctuates. The results of this study are significant for investment portfolio managers.

Keywords: dynamic connectedness; volatility spillover; conventional energy ETFs; alternative energy ETFs; TVP-VAR (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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