Navigating energy market uncertainty: Return transmission and portfolio implications of energy futures and derivative tokens

Based on QVAR modeling, this study aims to examine the return connectedness among conventional and renewable energy markets, along with energy futures and derivative tokens. Our key findings show strong transmission at the lower and higher quantile distributions, while exhibiting a moderate transmission at the median quantile. The return spillover across the system remains asymmetric, and both conventional and renewable energy markets remain the net transmitters while energy futures and derivative tokens emerge as net absorbers of return spillover. Besides return connectedness, our findings relevant to portfolio implication infer that both energy futures and derivative tokens remain effective to hedge and diversify effectively. Surprisingly, our findings posit that, as compared to derivative tokens, conventional energy futures remain more optimal to navigate global energy market uncertainty. Our finding carries valuable insights for investors, portfolio managers, and hedge fund managers to make informed asset allocation decisions and optimize their portfolios to navigate energy market uncertainty more effectively and efficiently.