Time-varying price dynamics of clean and dirty energy portfolios

Ah Mand, Abdollah; Ghafoor, Abdul; Sifat, Imtiaz

Abstract

This paper investigates the dynamic relationships between four key instruments related to clean and dirty energy assets: WTI futures, United States Oil Fund (USO), EnergySelect Sector SPDR Fund (XLE), and iShares Global Clean Energy ETF (ICLN). Econometric tests confirm a long-term relationship between all variables, with causality tests showing that clean energy ETF has a causal influence on most instruments. However, the causal patterns are not definitively interpretable in an economic framework. Moreover, using wavelet-based tests on a 1-min interval transaction dataset, we further find convergence delay between WTI and XLE, and to a lesser extent, USO, but not ICLN. This suggests that clean energy has the potential to be a distinct asset class. We also identify the time scales at which arbitrage opportunities and liquidity movements occur: 32–256 and 4–8 min, respectively. These are new stylized facts about clean and dirty energy market assets and contribute to the limited literature available on high-frequency dynamics in the said markets.

• Journal Article Type: Article
• Acceptance Date: Mar 5, 2023
• Online Publication Date: Mar 28, 2023
• Publication Date: Jul 1, 2023
• Deposit Date: Apr 25, 2023
• Publicly Available Date: Apr 25, 2023
• Journal: Journal of Environmental Management
• Print ISSN: 0301-4797
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 337
• Pages: 117687
• DOI: https://doi.org/10.1016/j.jenvman.2023.117687
• Keywords: Financial Management, Dirty energy, Energy economics, Environmental economics, Clean energy, United States, Forecasting, Comovement, Sustainable investment
• Public URL: https://uwe-repository.worktribe.com/output/10625761
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0301479723004759?via%3Dihub