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The dynamic connectedness and hedging opportunities of implied and realized volatility: Evidence from clean energy ETFs

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  • Çelik, İsmail
  • Sak, Ahmet Furkan
  • Höl, Arife Özdemir
  • Vergili, Gizem

Abstract

This paper aims to examine dynamic connectedness and hedging opportunities between the realized volatilities of clean energy ETFs and energy implied volatilities through Time-Varying Parameter Vector Autoregression Model (TVP-VAR) and Asymmetric Dynamic Conditional Correlation (ADCC) GARCH models. TVP-VAR analysis results show that dynamic connectedness increases during turbulence periods. We also determine that clean energy ETFs such as PBW, QCLN, SMOG, and TAN are net volatility transmitters. Surprisingly, OVX is a net volatility receiver, especially with the developments after the Paris Agreement in 2016.

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  • Çelik, İsmail & Sak, Ahmet Furkan & Höl, Arife Özdemir & Vergili, Gizem, 2022. "The dynamic connectedness and hedging opportunities of implied and realized volatility: Evidence from clean energy ETFs," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:ecofin:v:60:y:2022:i:c:s1062940822000262
    DOI: 10.1016/j.najef.2022.101670
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    More about this item

    Keywords

    Clean energy ETF; Implied volatility; Dynamic connectedness; Hedging effectiveness;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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