Hedging Strategies of Green Assets against Dirty Energy Assets

Tareq Saeed, Elie Bouri () and Khoa Tran
Additional contact information
Tareq Saeed: Nonlinear Analysis and Applied Mathematics (NAAM)-Research Group, Department of Mathematics, Faculty of Science, King Abdulaziz University, Jeddah, Makkah 22254, Saudi Arabia

Energies, 2020, vol. 13, issue 12, 1-17

Abstract: Previous studies argue that the relationships between clean/green and dirty energy assets are time-varying, but there is a lack of evidence on the hedging ability of clean energy stocks and green bonds for dirty assets, such as crude oil and an energy stock index exchange traded fund (ETF), and the portfolio implications. Furthermore, potential drivers of the dynamics of the hedge portfolio returns are still unknown. To address these research gaps, the authors provide an extensive analysis of the hedging ability of clean/green assets against two dirty energy assets (crude oil prices and energy ETF) using daily data from 3 January 2012 to 29 November 2019. Using corrected dynamic conditional correlation models, the authors model correlation and then compute hedge ratios and hedging effectiveness, which all seem to vary with time. The results from hedging effectiveness indicate that investors should follow a dynamic hedging strategy and that clean energy stocks are more effective hedge than green bonds, especially for crude oil. The application of regression analyses shows that the implied volatilities of US equities and crude oil as well as US dollar index have a negative impact on the hedge portfolio returns, whereas gold prices and inflation have a positive impact.

Keywords: clean energy stocks; green bonds; crude oil; energy ETF; dirty energy assets; hedge; determinants (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: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

Downloads: (external link)
https://www.mdpi.com/1996-1073/13/12/3141/pdf (application/pdf)
https://www.mdpi.com/1996-1073/13/12/3141/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:13:y:2020:i:12:p:3141-:d:372689

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().