Dynamic connectedness, portfolio performance, and hedging effectiveness of the hydrogen economy, renewable energy, equity, and commodity markets: Insights from the COVID-19 pandemic and the Russia-Ukraine war

Rubbaniy, Ghulame; Almaghaireh, Aktham; Cheffi, Walid; Khalid, Ali Awais

Abstract

This study employs a Time-Varying Parameter Vector Auto Regressive (TVP-VAR) connectedness approach to investigate the dynamic interconnections, portfolio performance, and hedging effectiveness across hydrogen economy, renewable energy markets, equities, and energy commodities amidst the backdrop of the COVID-19 pandemic and the Russia-Ukraine conflict. Our findings reveal a consistent level of average connectedness during both black swan events, with dynamic connectedness reaching its peak during the COVID-19 crisis. While some assets (hydrogen economy index, renewable, solar and clean technology index) persistently function as net transmitters, the others (geothermal index, crude oil, natural gas, biofuel, and gold) consistently act as net receivers. We also find that the role of equity indices (wind energy, fuel cell, FTSE_100, and S&P 500) as net transmitters or receivers changes over time. The network plot results show that the hydrogen economy typically functions as shock transmitters for equity market indices and commodities. Portfolio analysis underscores the superior risk-adjusted performance of the minimum variance (connectedness) portfolio during the COVID-19 crisis in comparison to the Russia-Ukraine conflict. Furthermore, our examination of effective hedge and portfolio strategies demonstrates that managed collateralized portfolio weights of hydrogen economy and renewable energy assets (equities) in the minimum variance portfolio increase (decrease) from 7% to 12% (53% to 41%) during the COVID-19 crisis, and subsequently decline (rise) further to 6% (53%) amidst the Russia-Ukraine conflict. These findings suggest a preference for hydrogen economy and renewable energy assets as hedging instruments in health-related financial crises over crises precipitated by military conflicts.

• Journal Article Type: Article
• Acceptance Date: Apr 10, 2024
• Online Publication Date: Apr 16, 2024
• Publication Date: May 1, 2024
• Deposit Date: Apr 12, 2024
• Publicly Available Date: Apr 17, 2026
• Print ISSN: 0959-6526
• Electronic ISSN: 1879-1786
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 452
• Article Number: 142217
• Keywords: Hydrogen economy: Dynamic connectedness; Minimum Connectedness; Portfolio performance; COVID-19; Russia-Ukraine war JEL Codes: C22, C52, G11, G15, Q43
• Public URL: https://uwe-repository.worktribe.com/output/11890964