Dynamic dependence and spillover among the energy related ETFs: From the hedging effectiveness perspective

Hao Ji, Muhammad Naeem, Jing Zhang, Aviral Kumar Tiwari

Research output: Contribution to journalArticlepeer-review

Abstract

Due to the fundamental position of energy, the dynamics of the energy ETF markets are of great interest when facing unexpected event shocks. To explore the volatility spillovers within the energy ETF market and with other related markets under event shocks, we use the PCA method to extract macroeconomic factor series (ME) from four types of ETF return series. Then, we apply the DCC-GARCH-Copula model to analyze the dynamic correlation between the energy EFTs and the MEs as well as the related ETFs. Finally, the TVP-VAR-DY index is used to explore the spillover relationship between these markets in terms of spillover impact. The findings suggest that the clean energy ETFs have a greater volatility pass-through to real estate, while the volatility pass-through of energy ETFs to gold is stronger in all cases. Total connectivity in these markets exhibits different performances at different stages during the sample period, reaching its peak during the global COVID-19. These findings support investors to adjust their asset portfolios in a timely manner in the face of shocks while helping regulators strategize more effectively.

Original languageEnglish
Article number107681
JournalEnergy Economics
Volume136
DOIs
Publication statusPublished - Aug 2024
Externally publishedYes

Keywords

  • DCC-GARCH copula
  • Energy ETFs
  • TVP-VAR-DY index

ASJC Scopus subject areas

  • Economics and Econometrics
  • General Energy

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