From forests to faucets to fuel: Investigating the domino effect of extreme risk in timber, water, and energy markets

ABSTRACT

This study explores the interdependence between timber, water, and energy markets and investigates the potential domino effect of extreme risk across these markets. Specifically, using CAViaR-TVP-VAR, we examine the role of water and timber investments as safe-havens and hedges for traditional energy markets, before and after the COVID-19 pandemic. Our results indicate that water and timber markets can serve as reliable safe-haven options for energy investors. Moreover, our findings suggest a weak link between natural gas and its counterparts, underscoring the need for energy portfolios to diversify. This study provides valuable insights for investors seeking to navigate extreme risk.