Hedging strategies among financial markets: the case of green and brown assets

Ibrahim Raheem, Oluyele Akinkugbe (), Agboola H. Yusuf () and Mahdi Ghaemi Asl ()
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Oluyele Akinkugbe: University of the Witwatersrand
Agboola H. Yusuf: University of Ilorin
Mahdi Ghaemi Asl: Kharazmi University

Empirical Economics, 2023, vol. 65, issue 2, No 9, 873 pages

Abstract: Abstract Recognizing the growing importance of the green energy market—renewable energy stocks and bonds—and its classification as a viable financial asset, this paper examines hedging strategies with brown market instruments—gold, oil, bond and the composite S&P500—on the green energy markets. That is, we examine whether, and to what extent brown assets can provide a hedge for green assets, using variants of the multivariate GARCH framework (DCC, ADCC and GO-GARCH). Our dataset spans the period 01/12/2008 to 30/09/2021. To account for the influence of the COVID-19 pandemic, we split the dataset into two—pre-covid (1/12/2008–10/03/2020) and covid-era (11/03/202–30/09/2021). Two key findings emanate from our results: first, conventional bonds and stocks provide the most consistent hedge for investment in the green markets. Second, the results are sensitive to the state of the market—hedging effectiveness declined during the covid period in the green stock market. Among other things, it is recommended that investors include instruments of the green market in portfolio allocation.

Keywords: Gold; Oil; Stocks; Bond; Renewable energy market; GARCH; Hedging (search for similar items in EconPapers)
JEL-codes: G15 Q43 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-023-02358-1

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