ABSTRACT
PurposeThis paper aims to empirically investigate the extent to which interdependence in markets may be driven by COVID-19 effects.Design/methodology/approachThe current global COVID-19 pandemic is adversely affecting the oil market (West Texas Intermediate) and crypto-assets markets.FindingsThe authors find that the dependence structure changes significantly after the global pandemic, providing valuable information on how the COVID-19 crisis affects interdependencies. The results also prove that the performance of digital gold seems to be better compared to stablecoin.Originality/valueThe authors fit copulas to pairs of before and after returns, analyze the observed changes in the dependence structure and discuss asymmetries on propagation of crisis. The authors also use the findings to construct portfolios possessing desirable expected behavior.
ABSTRACT
The current global COVID-19 pandemic is adversely affecting financial markets, including commodities, conventional stocks, and Islamic stocks. This paper empirically investigates the extent to which COVID-19 effects may drive interdependence in markets. We fit copulas to pairs of returns before and during the ongoing epidemic shock, analyze the observed changes in the dependence structure, and discuss asymmetries on the propagation of crisis. We also use the findings to construct portfolios possessing desirable expected behavior. We find that the dependence structure changes significantly during the global pandemic providing valuable information on how the COVID-19 crisis affects inter-dependencies. The selected portfolio, including gold and Islamic return indices, has the best performance outside the COVID-19 crisis, and slightly more performing during the bear markets validating gold's intrinsic characteristic to be a safe haven. However, the portfolio performances, when combining the Brent with Islamic or conventional indices, have the same trend for the whole period. Our findings contribute to help investors better adjust their investment strategies.
ABSTRACT
This paper aims to build an incentive to mobilize the financial resources needed to accelerate the transition to a climate resilient economy. To this end, we examine the dependence structure using copulas theory and then the risk transmissions between green financial products and the energy commodity market index. This methodology provides opportunities to investors in green finance to protect their portfolios against downside or upside risk by taking long or long position. In our empirical study for the period July 2014 to September 2020, marginal equities show a long memory in the volatility process captured by FIGARCH model, justifying by the various crisis, the last of which is the ongoing COVID-19 pandemic. Using VaRs and CoVaRs measures, we find that green instruments (mainly the green bonds) are significantly affected by substantial price spillovers from energy commodity market during critical periods. Many obstacles to set up investments’ opportunities are discussed.
ABSTRACT
This paper examines the interactions among regional green energy equity markets and their dependence and connectedness with both uncertainties and price fluctuations in the global financial and crude oil markets. Using wavelets and spillovers based on a Time-Varying Parameter VAR model with stochastic volatility, we investigate the lead-lag relationships, co-movement and time-varying integration among these markets across different time domains. First, we found low covariance but positive and strong correlations among regional green energy equities across all time scales. Correlations are mainly negative and weak between regional green energy returns and uncertainties, except for Asia that exhibits positive correlation with oil price shocks in the long term. In terms of fluctuations in prices, results are similar regarding the covariance and correlations with global equity market prices but different for crude oil prices, where all regional green equity markets exhibit positive covariance and correlation with oil price changes especially in the medium term. Second, strong dependence exist among regional green energy equity markets in the medium and long term, especially between the U.S. and European markets. Similarly, dependence among green energy equities and global equity and oil markets both in terms of uncertainties and price fluctuations is weak in the short-run but strengthens towards the long-term except during the COVID-19 period when short-term integration rose sharply. Lastly, the global equity market is the leading source of risks while the Asian green equity market is the main net-receiver of shocks, especially in terms of price fluctuations in the global equity and crude oil markets. We document some crucial practical implications of these results both for investors and policy makers.