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Extreme downside risk transmission between green cryptocurrencies and energy markets: The diversification benefits

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  • Naeem, Muhammad Abubakr
  • Nguyen, Thi Thu Ha
  • Karim, Sitara
  • Lucey, Brian M.

Abstract

This study investigates the connectedness between renewable energy cryptocurrencies and various energy categories, focusing on extreme downside risk or tail risk. The research employs a novel framework that combines the CAViaR model with the TVP-VAR based connectedness approach to analyze the systematic tail risk transmission mechanisms. The study covers a period from January 2, 2018, to January 25, 2023, and reveals that Solar and WILDERHILL clean energy markets had the highest risk levels. Conversely, clean energy cryptocurrencies like GARID, POWR, and SNC demonstrated stable tail risk over time, offering diversification benefits, particularly in relation to energy metals and fossil fuels. The study identified strong intra-class connectedness clusters and highlighted extreme risk spillovers during crisis periods through time-varying trends. Several implications for policymakers, investors, and financial market participants are suggested.

Suggested Citation

  • Naeem, Muhammad Abubakr & Nguyen, Thi Thu Ha & Karim, Sitara & Lucey, Brian M., 2023. "Extreme downside risk transmission between green cryptocurrencies and energy markets: The diversification benefits," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006359
    DOI: 10.1016/j.frl.2023.104263
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    2. Zhou, Yang & Xie, Chi & Wang, Gang-Jin & Gong, Jue & Li, Zhao-Chen & Zhu, You, 2024. "Who dominate the information flowing between innovative and traditional financial assets? A multiscale entropy-based approach," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 329-358.
    3. Pham, Son D. & Nguyen, Thao T.T. & Do, Hung X., 2024. "Impact of climate policy uncertainty on return spillover among green assets and portfolio implications," Energy Economics, Elsevier, vol. 134(C).
    4. Boubaker, Sabri & Karim, Sitara & Naeem, Muhammad Abubakr & Sharma, Gagan Deep, 2023. "Financial markets, energy shocks, and extreme volatility spillovers," Energy Economics, Elsevier, vol. 126(C).
    5. Naeem, Muhammad Abubakr & Husain, Afzol & Bossman, Ahmed & Karim, Sitara, 2024. "Assessing the linkage of energy cryptocurrency with clean and dirty energy markets," Energy Economics, Elsevier, vol. 130(C).
    6. Wang, Yi & Ali, Shoaib & Ayaz, Muhammad, 2024. "Equity markets and ESG dynamics: Assessing spillovers and portfolio strategies through time-varying parameters," Energy Economics, Elsevier, vol. 134(C).

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