Researchers at Pusan ​​National University explore the potential of clean energy markets as a hedging tool

Researchers examine clean energy investments, highlighting their potential to stabilize and strengthen portfolios amid fluctuating market conditions

BUSAN, South Korea, August 1, 2024 /PRNewswire/ — Climate change has significantly impacted the lives of people around the world and has prompted governments to adopt policies that promote sustainable development and the use of clean energy sources. This shift toward clean energy has led to an increase in investment in renewable energy sources and technologies. Clean energy assets have a unique advantage – they are not subject to the parameters that affect their traditional stock market counterparts. However, the interactions between 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 Busan National University examined the relationship between clean energy indices and major international stock markets. The researchers investigated whether clean energy investments can provide stability when traditional stock markets experience turbulence. Their findings are published online at July 10, 2024 in the diary Energy economics.

The researchers used a method called tail quantile connectedness regression to examine how different financial assets interact, especially in extreme market conditions. This method allowed them to examine how shocks to major stock market indices such as the SP500 and FTSE100, as well as the Renewable Energy and Clean Technology Index (RECTI), affect other indices such as Japan Nikkei225 and Global Clean Energy Index (GCEI).

Professor Kang explains, “Investors are looking to protect their portfolios from volatility by diversifying them 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 a variety of factors, such as government policies and technological advances in renewable energy.”

The study found that financial shocks often start in large markets such as the US, EU and UK, originate in indices such as RECTI, and then spread to markets in Japan and GCEI. During normal and bullish (when stock prices rise) phases, short-term effects dominated, while during market declines or collapses, the effects ranged from medium-term to long-term. This shows that different clean energy indices play a unique role in the global financial system, influencing how information and risk spread across markets, and underscores their resilience and lasting impact, even in difficult economic conditions.

In addition, the study identified the specific roles played by different clean energy indices in conveying information. For example, RECTI tends to be active, while the Green Bond Index remains relatively isolated. On the other hand, the GCEI tends to be passive.

These results indicate that clean energy investments can act as safeguards or buffers against fluctuating market conditions, increasing financial stability and resilience to economic turbulence.

Prof. Kang explains: “Our findings suggest that clean energy assets, in combination with other financial assets such as WTI and CSI300, should form a significant part of a diversified investment portfolio to mitigate risk in a variety of market conditions.”.”

Finally, he talks about the long-term impact of his research:Greater awareness and understanding of the spillover effects between these markets can lead to policy decisions that support sustainable economic growth and environmental protection, ultimately contributing to a more resilient global financial system.”

In summary, the emerging clean energy sector has enormous potential to support financial stability in the face of changing market conditions.

Reference
Title of original work: Are Clean Energy Markets Hedges for Equity Markets? Tail Quantile Connection 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
[email protected]

View original content to download multimedia: https://www.prnewswire.com/news-releases/naukowcy-z-uniwersytetu-narodowego-pusan-eksplorują-potencjał-rynków-czystyj-energii-jako-narzędzie-zabezpieczące-302211147.html

SOURCE Busan National University