Is gold a preferable diversifier of cleaner equity risk across diverse scenarios? Evidence from multidimensional connectedness and spillover measures

The study aims to explore the risk management potential of historical (gold and crude oil) and modern (bitcoin) assets against the shocks in clean energy stocks. Specifically, the quest related to which asset(s)? In what proportion? In which market condition? and for what time preference? should be held with cleaner equity. The exploration is based on the presumptions that conventional and cleaner stocks are alike and that financial markets (assets) have an asymmetric interdependence. We also assume that the interdependence among the considered markets is driven by various events over time and distinct investment horizons. To that end, we employ a generalized vector autoregressive-based overall, time-varying, asymmetric, and frequency-based connectedness measures and DCC-GARCH model to the daily data ranging from October 15, 2014 to April 12, 2023. The spillovers across the considered markets confirm the similarity of conventional and cleaner stocks and the asymmetry hypothesis, suggesting that downside shock transmission (bad spillovers) outperforms upside shock transmission (good spillovers). The time-varying results suggest that connectedness among the considered markets is higher, and asymmetric during Brexit-2016, the COVID-19 pandemic, Russia's invasion of Ukraine in early 2022, and the monetary policy tightening of 2022 and 2023. Finally, we show that gold is a preferable diversifier of cleaner equity risk on average, during distress events, downside markets, and across all investment horizons. The study has implications for financial market participants to strategically manage the cleaner equity risk with gold in diverse market scenarios.