Energy Market Risk Management under Uncertainty: A VaR Based on Wavelet Approach

Alqaralleh Huthaifa (), Ahmad Al-Saraireh () and Alessandra Canepa

Department of Economics and Statistics Cognetti de Martiis. Working Papers from University of Turin

Abstract: This study contributes to the literature on energy market risk management and portfolio management by examining co-movements between several energy commodities in a portfolio context in light of the impact of several types of uncertainty over time and under high, medium, and low frequencies. Using of wavelet decomposition analysis, we first investigate the leadlag relationship together with the power of the correlation over time between major renewable and non-renewable energy indexes and uncertainty indexes. Second, we explore the contribution of uncertainty to the energy portfolio. Our procedure reveals that a dependent relationship generally exists between energy returns and changes in uncertainty. The risks of clean energy and crude oil returns are more sensitive to financial uncertainties, whereas investing in GAS markets offers market diversification opportunities during periods of energy uncertainty.

Pages: pages 21
Date: 2021-07
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Journal Article: Energy Market Risk Management under Uncertainty: A VaR Based on Wavelet Approach (2021)
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