Connectedness and Portfolio Management between Clean Energy, Crude Oil Prices and Equities Market before and during The Russia-Ukraine War: Evidence for GCC Countries

Walid Chkili () and Samir Mabrouk ()
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Walid Chkili: University of Tunis El Manar
Samir Mabrouk: University of Sousse

No 1764, Working Papers from Economic Research Forum

Abstract: This paper examines the risk dependence between clean energy, oil prices and GCC stock markets during the period 2015-2023 covering the two recent events of COVID-19 pandemic and Russia-Ukrainian conflict. The main purpose is to investigate the volatility spillovers of clean and dirty energy markets versus GCC stock indices. We use two methodologies namely the Diebold and Yilmaz (2012, 2014) volatility spillover index and the wavelet coherence analysis. The Diebold-Yilmaz connectedness index shows that oil prices, KSA and Kuwait stock markets are the net transmitter of shocks while clean energy index and the stock markets of UAE, Qatar, Bahrain and Oman are net receiver of volatility. The wavelet coherency approach reveals that the dependence between clean energy/oil prices and the stock markets varies across time scales and considered countries. The intense coherence is detected during the oil crash and the COVID-19 crisis at low frequencies (high scales). The findings have several financial implications for investors and portfolio managers. The GCC investors should add either clean energy or crude oil to their portfolio of stocks in order to minimize the risk of portfolio. The hedging ratios show that both clean energy and crude oil offer effective hedging strategies. Finally, the hedging effectiveness index reveals a higher reduction of hedged portfolio risk involving clean energy than crude oil.

Pages: 31
Date: 2024-12-20, Revised 2024-12-20
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