Researchers investigate clean energy investments emphasizing
their potential to stabilize and enhance portfolios during
fluctuating market conditions
BUSAN, South Korea,
Aug. 1, 2024 /PRNewswire/ -- Climate
change has significantly impacted lives worldwide and prompted
governments to adopt policies promoting sustainability and use of
clean energy sources. This shift to clean energy has triggered
increased investments in renewable energy and technologies. Clean
energy assets possess a unique advantage – they are not affected by
parameters influencing their traditional stock market counterparts.
However, the interactions between the clean energy and traditional
stock markets are not well understood.
To fill this gap, a group of researchers led by Professor
Sang Hoon Kang from Pusan
National University explored the
relationship between clean energy indices and major international
stock markets. The researchers investigated if clean energy
investments could provide stability when traditional stock markets
experience turbulence. Their findings were published online on
10 July 2024 in the journal of
Energy Economics.
The researchers used a method called tail quantile connectedness
regression to study how different financial assets interacted,
especially during extreme market conditions. This method let them
examine how shocks from major stock indices like the SP500 and the
FTSE100, as well as the Renewable Energy and Clean Technology Index
(RECTI), affect other indices such as Japan's Nikkei225 and the Global Clean Energy
Index (GCEI).
Prof. Kang explains, "Investors seek to protect their
portfolios from volatility by diversifying with assets that don't
follow the same trends as traditional stocks. Clean energy assets
are promising for this purpose because they are influenced by
different factors, such as government policies and technological
advancements in renewable energy."
The study found that financial shocks often start in major
markets like the US, the EU, and the UK, and from indices such as
the RECTI, then flow to markets in Japan and the GCEI. During normal and bull
market (when stock prices are increasing) phases short-term effects
dominated, whereas during declining or busting market states, the
impacts ranged from intermediate to long-term ones. This shows that
different clean energy indices play unique roles in the global
financial system, affecting how information and risks are spread
across markets, and highlights their resilience and lasting
influence, even in challenging economic climates.
Furthermore, the study identified specific roles played by
different clean energy indices in information transmission. For
instance, the RECTI tends to act actively, while the Green Bond
Index remains relatively isolated. The GCEI, on the other hand,
tends to receive information passively.
These findings suggest that clean energy investments can act as
hedges or buffers during fluctuating market conditions, promoting
financial stability and resilience against economic turbulence.
Prof. Kang elaborates, "Our findings suggest that clean
energy assets paired with other financial assets such as WTI and
CSI300, should form a significant portion of a diversified
investment portfolio to mitigate risks during different market
conditions."
He concludes with the long-term impact of their study,
"Heightened awareness and better understanding of the spillover
effects between these markets can drive policy decisions that
support sustainable economic growth and environmental protection,
ultimately fostering a more resilient global financial
system."
In summary, the expanding clean energy sector holds great
potential to promote financial stability amidst fluctuating
markets.
Reference
Title of original paper: Are clean
energy markets hedges for stock markets? A tail quantile
connectedness regression
Journal: Energy Economics
DOI:
10.1016/j.eneco.2024.107757
About the institute
Website:
https://www.pusan.ac.kr/eng/Main.do
Contact:
Jae-Eun Lee
82 51 510 7928
381147@email4pr.com
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SOURCE Pusan National University