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Dynamic dependence of oil, clean energy and the role of technology companies: New evidence from copulas with regime switching

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  • Tiwari, Aviral Kumar
  • Nasreen, Samia
  • Hammoudeh, Shawkat
  • Selmi, Refk

Abstract

This paper uses a Dependence-Switching Copula (DSC) to examine the dependence and tail dependence between oil prices and stock returns of 54 clean energy companies in the WilderHill Clean Energy Index (WECI) and 100 technology companies in the NYSE Arca Technology Index (NATI) under four different market conditions, namely, bullish WECI or NATI/high oil price, bearish WECI or NATI/low oil price (i.e., positive correlation regimes), bullish WECI or NATI/low oil price, and bearish WECI or NATI/high oil price (i.e., negative correlation regimes). The findings reveal a asymmetric dependence structure under the positive correlation regimes, while a symmetric dependence under negative correlation regimes. However, the results also show a dissimilarity in the responses of stock returns of the selected companies with respect to the fluctuation in the oil prices. The tail dependence between oil and clean energy indices is the lowest under the positive correlation regimes and the that between oil and technology indices is the lowest under negative correlation regimes. For the two considered pairs, we note a dominance of the chasing effect (negative dependence) for some periods, while a dominance of the portfolio rebalancing effect (positive dependence) for the other periods. Our findings provide crucial information to investors and portfolio managers seeking low-risk opportunities in distressing times.

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  • Tiwari, Aviral Kumar & Nasreen, Samia & Hammoudeh, Shawkat & Selmi, Refk, 2021. "Dynamic dependence of oil, clean energy and the role of technology companies: New evidence from copulas with regime switching," Energy, Elsevier, vol. 220(C).
    • Handle: RePEc:eee:energy:v:220:y:2021:i:c:s0360544220326979
    DOI: 10.1016/j.energy.2020.119590
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    More about this item

    Keywords

    Clean energy stock returns; Technology stock returns; Oil prices; Dependence-switching copula;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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