Published: Giorgio Canarella and Stephen Miller

Giorgio Canarella and Stephen M. Miller (both Economics & Center for Business and Economic Research) published their paper “Dynamic Asymmetric Optimal Portfolio Allocation between Energy Stocks and Energy Commodities: Evidence from Clean Energy and Oil and Gas Companies,” with Mahdi Ghaemi Asl, Kharazmi University, in Resources Policy. This paper investigates returns and volatility transmission between SPGCE (S&P Global Clean Energy), SPGO (S&P Global Oil), two non-renewable energy commodities (natural gas and crude oil), and three products of crude oil distillation (heating oil, gasoline, and propane). We estimate a VAR(1) asymmetric BEKK-MGARCH(1,1) using daily U.S. data from March 1, 2010, to Feb. 25, 2020. The empirical findings reveal a vast heterogeneity in spillover patterns of returns, volatilities, and shocks. We employ the empirical results to derive optimal portfolio weights, hedge ratios, and effectiveness measures for SPGCE and SPGO diversified portfolios. We find dynamic diversification advantages of energy commodities, especially heating oil, for energy-related stock markets. We also find that SPGCE and SPGO stocks possess the highest average optimal weight and hedging effectiveness for each other, implying that the positive performance of SPGCE stocks considerably compensates for the negative performance of SPGO stocks.

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