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Time-varying co-movements between energy market and global financial markets : implication for portfolio diversification and hedging strategies.

Elsayed, A.H. and Nasreen, S. and Tiwari, A.K. (2020) 'Time-varying co-movements between energy market and global financial markets : implication for portfolio diversification and hedging strategies.', Energy economics., 90 . p. 104847.

Abstract

This study explores the time patterns of volatility spillovers between energy market and stock prices of seven major global financial markets including clean energy, energy, information technology corporations, equity markets and United States economic policy index over the period vary from December 28, 2000 to December 31, 2018. We employ a time domain connectedness measures of Diebold and Yilmaz (DY, 2009, 2012 and 2014) to examine spillover mechanism of volatility shocks across future markets. Optimal weights and hedge ratios are calculated for portfolio diversification and risk management. The main findings of the study conclude that oil shocks are exogenous and contribution of oil market volatility to global financial markets is insignificant. The returns of World Stock Index and World Energy Index are major transmitters of volatility to clean energy market. Moreover, the impact of energy market become strong in global financial market when data is divided into pre, during and post financial crisis periods. Finally, the hedge ratios are volatile over time and their maximum value is observed during the financial crisis period of 2008–09. The optimal portfolio between energy and stock prices are heavily weighted to the stock markets.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1016/j.eneco.2020.104847
Publisher statement:© 2020 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Date accepted:27 June 2020
Date deposited:30 June 2020
Date of first online publication:05 July 2020
Date first made open access:30 June 2020

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