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Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies

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  • Sadorsky, Perry

Abstract

In this paper, multivariate GARCH models are used to model conditional correlations and to analyze the volatility spillovers between oil prices and the stock prices of clean energy companies and technology companies. Four different multivariate GARCH models (BEKK, diagonal, constant conditional correlation, and dynamic conditional correlation) are compared and contrasted. The dynamic conditional correlation model is found to fit the data the best and generates results showing that the stock prices of clean energy companies correlate more highly with technology stock prices than with oil prices. On average, a $1 long position in clean energy companies can be hedged for 20cents with a short position in the crude oil futures market.

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  • Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, vol. 34(1), pages 248-255.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:1:p:248-255 DOI: 10.1016/j.eneco.2011.03.006
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    Keywords

    Renewable energy; Multivariate GARCH; Volatility; Oil prices;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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