What is the relationship between energy commodities and green assets?

Abstract

This study focuses on the time-varying correlation between energy commodities and the green bond and clean energy equity markets. The correlations are computed using the DCC model (Engle, 2002), and the period under analysis starts at the beginning of the green bond market and ends in October 2022. The markets analyzed are highly influenced by the recentturmoil in the financial markets, which consequently influences their correlations. Overall, I find positive correlations between all assets, however the green bonds-energy commodities correlation tends to be low and is negative in some days. During the COVID-19 outbreak, the green bonds-energy commodities correlation decreased sharply, while the opposite happened with the clean energy-energy commodities correlation. In March 2021, both correlations (green bonds-energy commodities and clean energy-energy commodities) decreased significantly, as well as at the beginning of the war in Ukraine. Also, the correlation between clean energy and green bonds is the highest overall. This way, investors can benefit from diversification benefits by including green bonds in an energy commodities portfolio especially in periods of crisis like the COVID-19, inflation and energy crises. The opposite happens for a clean energy equity portfolio.

Date of Award	23 Jan 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eva Schliephake (Supervisor)