Dependence structure between Indian financial market and energy commodities: a cross-quantilogram based evidence

Avik Sinha, Arshian Sharif (), Arnab Adhikari () and Ankit Sharma ()
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Arnab Adhikari: Indian Institute of Management Ranchi
Ankit Sharma: Chandragupt Institute of Management Patna

Annals of Operations Research, 2022, vol. 313, issue 1, No 11, 257-287

Abstract: Abstract Given the developing nations are moving towards attaining the sustainable energy future, the reliance on renewable energy solutions is rising. Therefore, the dependence on traditional fossil fuel-based solutions is getting reduced, and this might have an impact on the energy market commodities. Analyzing this impact might divulge several insights regarding the portfolio decisions, in presence of the transformations in developmental trajectory. In this study, we analyze the cross-quantile dependence of the returns on the energy market commodities and the market returns for Indian financial market over July 31, 2008 to March 31, 2020. For this purpose, we adopt a novel three-stage methodology comprising Dynamic Conditional Correlation GARCH, Cross-quantilogram, and Wavelet Coherence-based models. We find that the market returns have negative effect on returns on the energy market commodities. This impact has been found to be asymmetric in nature. Moreover, the moderating impact of policy uncertainty has been analyzed has been analyzed through partial cross-quantilogram approach, and the outcome shows that the impact remains same under extreme market conditions. The findings have significant portfolio decisions in an energy transition context.

Keywords: India; Energy market commodity; Cross-quantilogram; Uncertainty; Volatility (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10479-021-04511-4

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