Dynamic Asymmetric Optimal Portfolio Allocation between Energy Stocks and Energy Commodities: Evidence from Clean Energy and Oil and Gas Companies

Mahdi Ghaemi Asl, Giorgio Canarella and Stephen Miller
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Mahdi Ghaemi Asl: Kharazmi University

No 2020-07, Working papers from University of Connecticut, Department of Economics

Abstract: This paper investigates returns and volatility transmission between SPGCE (index of clean energy stocks), SPGO (index of oil and gas stocks), two non-renewable energy commodities (natural gas and crude oil), and three products of crude oil distillation (heating oil, gasoline, and propane). We estimate a VAR(1) asymmetric BEKK-MGARCH(1,1) using daily U.S. data from March 1, 2010, to February 25, 2020. The empirical findings reveal a vast heterogeneity in spillover patterns of returns, volatilities, and shocks. We employ the empirical results to derive optimal portfolio weights, hedge ratios, and effectiveness measures for SPGCE and SPGO diversified portfolios. We find dynamic diversification advantages of energy commodities, especially heating oil, for energy-related stock markets. We also find that SPGCE and SPGO stocks possess the highest average optimal weight and hedging effectiveness for each other, implying that the positive performance of SPGCE stocks considerably compensates for the negative performance of SPGO stocks. For investors and regulators, the advancement and implementation of clean energy programs and policies, while reducing environmental debt and enhancing “green” growth and sustainable development, provide instruments and strategies to hedge the equity risks inherent in the oil and gas industry.

Keywords: Clean energy stocks; Oil and gas stocks; Asymmetric BEKK; Dynamic Optimal Portfolios. (search for similar items in EconPapers)
JEL-codes: C33 G11 Q43 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-fmk, nep-ore and nep-rmg
Note: Mahdi Ghaemi Asl is the corresponding author
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Related works:
Journal Article: Dynamic asymmetric optimal portfolio allocation between energy stocks and energy commodities: Evidence from clean energy and oil and gas companies (2021)
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