Optimal hedge ratios for clean energy equities
Perry Sadorsky and
Economic Modelling, 2018, vol. 72, issue C, 278-295
Clean energy equities represent a relatively new class of assets to invest in, and these assets can be very volatile. An understanding of how investors in clean energy stocks can hedge their investment is essential for risk management. In this study, we use daily data covering the period March 03, 2008 to October 31, 2017, to examine how crude oil, US-bonds, gold, VIX, OVX and European carbon prices can be used to hedge an investment in clean energy equities. We apply three variants of multivariate GARCH models (DCC, ADCC and GO-GARCH) to estimate time-varying optimal hedge ratios. The results suggest that VIX is the best asset to hedge clean energy equities followed by crude oil and OVX. This is a new result relative to the existing literature on clean energy stock prices and one that is of interest to current and future investors in clean energy stocks.
Keywords: Clean energy equities; Crude oil; Multivariate GARCH; Optimal hedge ratios; VIX (search for similar items in EconPapers)
JEL-codes: C58 G11 G15 Q43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:72:y:2018:i:c:p:278-295
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