Multivariate dependence and spillover effects across energy commodities and diversification potentials of carbon assets
Gazi Uddin (),
Jose Areola Hernandez,
Syed Jawad Hussain Shahzad () and
Energy Economics, 2018, vol. 71, issue C, 35-46
In a first step, we model the multivariate tail dependence structure and spillover effects across energy commodities such as crude oil, natural gas, ethanol, heating oil, coal and gasoline using canonical vine (C-vine) copula and c-vine conditional Value-at-Risk (CoVaR). In the second step, we formulate portfolio strategies based on different performance measures to analyze the risk reduction and diversification potential of carbon assets for energy commodities. We identify greater exposure to losses arising from investments in heating oil and ethanol markets. We also find evidence of carbon asset providing diversification benefits to energy commodity investments. These findings motivate for regulatory adjustments in the trading and emission permits for the energy markets most strongly diversified by carbon assets.
Keywords: Carbon assets; Energy commodities; Tail dependence; Risk spillover (search for similar items in EconPapers)
JEL-codes: C58 G10 G11 Q02 (search for similar items in EconPapers)
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Working Paper: Multivariate dependence and spillover effects across energy commodities and diversification potentials of carbon assets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:71:y:2018:i:c:p:35-46
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