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Hedging strategies among financial markets: the case of green and brown assets

Author

Listed:
  • Ibrahim D. Raheem

    (Tubman Institute, York University)

  • Oluyele Akinkugbe

    (University of the Witwatersrand)

  • Agboola H. Yusuf

    (University of Ilorin)

  • Mahdi Ghaemi Asl

    (Kharazmi University)

Abstract

Recognizing the growing importance of the green energy market—renewable energy stocks and bonds—and its classification as a viable financial asset, this paper examines hedging strategies with brown market instruments—gold, oil, bond and the composite S&P500—on the green energy markets. That is, we examine whether, and to what extent brown assets can provide a hedge for green assets, using variants of the multivariate GARCH framework (DCC, ADCC and GO-GARCH). Our dataset spans the period 01/12/2008 to 30/09/2021. To account for the influence of the COVID-19 pandemic, we split the dataset into two—pre-covid (1/12/2008–10/03/2020) and covid-era (11/03/202–30/09/2021). Two key findings emanate from our results: first, conventional bonds and stocks provide the most consistent hedge for investment in the green markets. Second, the results are sensitive to the state of the market—hedging effectiveness declined during the covid period in the green stock market. Among other things, it is recommended that investors include instruments of the green market in portfolio allocation.

Suggested Citation

  • Ibrahim D. Raheem & Oluyele Akinkugbe & Agboola H. Yusuf & Mahdi Ghaemi Asl, 2023. "Hedging strategies among financial markets: the case of green and brown assets," Empirical Economics, Springer, vol. 65(2), pages 831-873, August.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:2:d:10.1007_s00181-023-02358-1
    DOI: 10.1007/s00181-023-02358-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Gold; Oil; Stocks; Bond; Renewable energy market; GARCH; Hedging;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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