Skip to main content
Springer Nature Link
Log in

Does the energy sector serve as a hedge and safe haven?

  • Original - OR Modeling/Case Study
  • Published:
Annals of Operations Research Aims and scope Submit manuscript

Abstract

This paper compares the hedging and safe haven properties of clean (renewable) energy and unclean (non-renewable) energy stocks. Using around 20 years of monthly clean and unclean energy indices and applying the GARCH and quantile regression models with dummy variables, we find that likewise the unclean energy stocks renewable energy stocks provide a weak hedge and a safe haven against the global economic policy uncertainty and its extreme values even during the pandemic and low and high return environments. These findings suggest that clean energy stocks provide immunity to investors against unfavourable changes to economic policy uncertainty and market volatility.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. https://www.policyuncertainty.com/global_monthly.html

  2. https://www.policyuncertainty.com/EMV_monthly.html

  3. GEPU: https://www.policyuncertainty.com/global_monthly.html

  4. EMV: https://www.policyuncertainty.com/EMV_monthly.html

  5. Results related to ASP-GARCH are not reported to conserve the space. However, they are available from authors on request.

  6. The calculation of \({\sum }_{i=0}^{k}{\beta }_{i}(k=1, 2, 3)\) is based on the variance–covariance matrices.

References

  • Ahmad, W., Sadorsky, P., & Sharma, A. (2018). Optimal hedge ratios for clean energy equities. Economic Modelling, 72, 278–295.

    Google Scholar 

  • Andersson, M., Bolton, P., & Samama, F. (2016). Hedging climate risk. Financial Analysts Journal, 72(3), 13–32.

    Google Scholar 

  • Arif, M., Naeem, M. A., Farid, S., Nepal, R., & Jamasb, T. (2022). Diversifier or more? Hedge and safe haven properties of green bonds during COVID-19. Energy Policy, 168, 113102.

    Google Scholar 

  • Azad, A. S., Batten, J. A., & Fang, V. (2015). What determines the yen swap spread? International Review of Financial Analysis, 40, 1–13.

    Google Scholar 

  • Azad, A. S., Fang, V., & Wickramanayake, J. (2011). Low-frequency volatility of yen interest rate swap market in relation to macroeconomic risk. International Review of Finance, 11(3), 353–390.

    Google Scholar 

  • Baker, S.R., Bloom, N., Davis, S., & Kost, K. (2019a). Policy News and Stock Market Volatility, NBER working paper no. 25720.

  • Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636.

    Google Scholar 

  • Baur, D. G., & Lucey, B. M. (2010). Is gold a hedge or a safe haven? An analysis of stocks, bonds, and gold. Financial Review., 45(2), 217–229.

    Google Scholar 

  • Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking and Finance., 34(8), 1886–1898.

    Google Scholar 

  • Berry, D. (2005). Renewable energy as a natural gas price hedge: The case of wind. Energy Policy, 33(6), 799–807.

    Google Scholar 

  • Bhatti, M. I., & Do, H. Q. (2020). Development in Copula Applications in Forestry and Environmental Sciences. In Statistical Methods and Applications in Forestry and Environmental Sciences (pp. 213–230). Springer, Singapore.

  • Bilgin, M. H., Gozgor, G., & Lau, C. K. M. (2018). The effects of uncertainty measures on the price of gold. International Review of Financial Analysis, 58, 1–7.

    Google Scholar 

  • Bouri, E., Gupta, R., Tiwari, A. K., & Rauboud, D. (2017a). Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters., 23, 87–95.

    Google Scholar 

  • Bouri, E., Jalkh, N., Molnár, P., & Rauboud, D. (2017b). Bitcoin for energy commodities before and after the December 2013 crash: Diversifier, hedge, or safe haven? Applied. Economics., 49(50), 5063–5073.

    Google Scholar 

  • Bouri, E., Molnár, P., Azzi, G., & Rauboud, D. (2017c). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters., 20, 192–198.

    Google Scholar 

  • Bredin, D., Conlon, T., & Potì, V. (2015). Does gold glitter in the long-run? Gold as a hedge and safe haven across time and investment horizons. International Review of Financial Analysis, 41, 320–328.

    Google Scholar 

  • Capie, F., Mills, T. C., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money, 15(4), 343–352.

    Google Scholar 

  • Copeland, T.E., Weston, J., & Shastri, K. (2005), Financial Theory and Corporate Policy, 4th Edition. Addison-Wesley Publishing Company.

  • Copeland, T. E., & Joshi, Y. (1996). Why derivatives don’t reduce FX risk. The McKinsey Quarterly, 1, 66–79.

    Google Scholar 

  • Demir, E., Gozgor, G., Lau, C. K. M., & Vigne, S. A. (2018). Does economic policy uncertainty predict the Bitcoin returns? An Empirical Investigation. Finance Research Letters., 26, 145–149.

    Google Scholar 

  • Dyhrberg, A. H. (2016). Bitcoin, gold, and the dollar–A GARCH volatility analysis. Finance Research. Letters., 16, 85–92.

    Google Scholar 

  • Elsayed, A. H., Nasreen, S., & Tiwari, A. K. (2020). Time-varying co-movements between energy market and global financial markets: Implication for portfolio diversification and hedging strategies. Energy Economics, 90, 104847.

    Google Scholar 

  • Faugere, C., & Erlach, J. V. (2006). The equity premium: Consistent with GDP growth and portfolio insurance. Financial Review, 41(4), 547–564.

    Google Scholar 

  • Fazal, R., Rehman, S. A. U., Rehman, A. U., Bhatti, M. I., & Hussain, A. (2021). Energy-environment-economy causal nexus in Pakistan: A graph theoretic approach. Energy, 214, 118934.

    Google Scholar 

  • Guo, D., & Zhou, P. (2021). Green bonds as hedging assets before and after COVID: A comparative study between the US and China. Energy Economics, 104, 105696.

    Google Scholar 

  • Gustafsson, R., Dutta, A., & Bouri, E. (2022). Are energy metals hedges or safe havens for clean energy stock returns? Energy, 244, 122708.

    Google Scholar 

  • Hasan, M. B., Hassan, M. K., Rashid, M. M., & Alhenawi, Y. (2021a). Are safe haven assets really safe during the 2008 global financial crisis and the COVID-19 pandemic? Global Finance Journal, 50, 100668.

    Google Scholar 

  • Hasan, M., Mahi, M., Sarker, T., & Amin, M. (2021b). Spillovers of the COVID-19 pandemic: Impact on global economic activity, the stock market, and the energy sector. Journal of Risk and Financial Management, 14(5), 200.

    Google Scholar 

  • Hassan, M. K., Hasan, M. B., Rashid, M. M., Halim, Z. A., & Maroney, N. (2022). Exploring the dynamic spillover of cryptocurrency environmental attention across commodities, green bonds, and environment-related stocks. The North American Journal of Economics and Finance, 61, 101700.

    Google Scholar 

  • Hood, M., & Malik, F. (2013). Is gold the best hedge and a safe haven under changing stock market volatility? Review of Financial Economics, 22, 47–52.

    Google Scholar 

  • Hood, M., & Malik, F. (2018). Estimating downside risk in stock returns under structural breaks. International Review of Economics Finance, 58, 102–112.

    Google Scholar 

  • Iqbal, J. (2017). Do gold hedge stock market, inflation and exchange rate risks? An econometric investigation. International Review of Economics & Finance., 48, 1–17.

    Google Scholar 

  • Ji, Q., Zhang, D., & Zhao, Y. (2020). Searching for safe haven assets during the COVID-19 pandemic. International Review of Financial Analysis, 71, 1–10.

    Google Scholar 

  • Kamal, J. B., & Hassan, M. K. (2022). Asymmetric connectedness between cryptocurrency environment attention index and green assets. The Journal of Economic Asymmetries, 1(25), e00240.

    Google Scholar 

  • Kaul, A., & Sapp, S. (2006). Y2K fears and safe haven trading of the US dollar. Journal of International Money and Finance, 25(5), 760–779.

    Google Scholar 

  • Kopyl, K., & Lee, J. (2016). How safe are the safe haven assets? Financial Markets and Portfolio Management, 30, 453–482.

    Google Scholar 

  • Kuang, W. (2021). Are clean energy assets a safe haven for international equity markets? Journal of Cleaner Production, 302, 127006.

    Google Scholar 

  • Lucey, B. M., Poti, V., & Tully, E. (2006). International portfolio formation, skewness and the role of gold. Frontiers in Finance and Economics, 3(1), 1–17.

    Google Scholar 

  • Lucey, B. M., Sharma, S. S., & Vigne, S. A. (2017). Old and inflation (s)–a time-varying relationship. Economic Modelling, 67, 88–101.

    Google Scholar 

  • Maurya, N. (2018). Crypto trading volume hikes as Turkey citizens' interest shifts from plunging lira to Bitcoin. https://coingape.com/crypto-trading-volume-hikesturkey-shiftsplunging-lira/ (Accessed 15 January 2019).

  • Mensi, W., Hammoudeh, S., Reboredo, J., & Nguyen, D. (2015). Are Sharia stocks, gold and U.S. Treasury hedges and/or safe havens for the oil-based GCC markets? Emerging Markets Review, 24 (September), pp. 101–121.

  • Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.

    Google Scholar 

  • Naeem, M. A., Hasan, M., Arif, M., Suleman, M. T., & Kang, S. H. (2022). Oil and gold as a hedge and safe haven for metals and agricultural commodities with portfolio implications. Energy Economics, 105, 105758.

    Google Scholar 

  • Nguyen, C., & Bhatti, M. I. (2012). Copula model dependency between oil prices and stock markets: Evidence from China and Vietnam. Journal of International Financial Institutions, Instruments and Money, 22(4), 758–773.

    Google Scholar 

  • O’Connor, F. A., Lucey, B. M., Batten, J. A., & Baur, D. G. (2015). The financial economics of gold– a survey. International Review of Financial Analysis, 41, 186–205.

    Google Scholar 

  • Parker, S., & Bhatti, M. I. (2020). Dynamics and drivers of per capita CO2 emissions in Asia. Energy Economics, 89, 104798.

    Google Scholar 

  • Pham, L. (2019). Do all clean energy stocks respond homogeneously to oil price? Energy Economics, 81, 355–379.

    Google Scholar 

  • Ranaldo, A., & Söderlind, P. (2010). Safe haven currencies. Review of Finance, 14(3), 385–407.

    Google Scholar 

  • Rangel, J. G., & Engle, R. F. (2012). The Factor–Spline–GARCH model for high and low frequency correlations. Journal of Business & Economic Statistics, 30(1), 109–124.

    Google Scholar 

  • Reboredo, J. C., Rivera-Castro, M. A., & Ugolini, A. (2017). Wavelet-based test of co-movement and causality between oil and renewable energy stock prices. Energy Economics, 61, 241–252.

    Google Scholar 

  • Rentschler, J. (2013). Oil Price Volatility, Economic Growth and the Hedging Role of Renewable Energy, World Bank Policy Research Working Paper, No. 6603

  • Selmi, R., Mensi, W., Hammoudeh, S., & Bouoiyoir, J. (2018). Is Bitcoin a hedge, a safe haven or a diversifier for oil price movements? A Comparison with Gold. Energy Economics., 74, 787–801.

    Google Scholar 

  • Umar, M., Farid, M., & Naeem, M. (2022). Time-frequency connectedness among clean-energy stocks and fossil fuel markets: Comparison between financial, oil and pandemic crisis. Energy, 240(1), 122702.

    Google Scholar 

  • UNEP, 2020. Global Trends in Renewable Energy Investment 20202, Frankfurt, Germany: Frankfurt School, FS-UNEP Collaborating Centre for Climate & Renewable Energy Finance.

  • Upper, C. (2000). How safe was the “safe haven”? Financial market liquidity during the 1998 turbulences. Deutsche Bundesbank Working Paper No. 1/00.

  • Wan, D., Xue, R., Linnenluecke, M., Tian, J., & Shan, Y. (2021). The impact of investor attention during COVID-19 on investment in clean energy versus fossil fuel firms. Finance Research Letters, 43, 101955.

    Google Scholar 

  • Wang, G. J., Xie, C., Wen, D., & Zhao, L. (2019). When Bitcoin meets economic policy uncertainty (EPU): Measuring risk spillover effect from EPU to Bitcoin. Finance Research Letters, 31, 489–497.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Finance, Deakin Business School, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, VIC, 3125, Australia

    A. S. M. Sohel Azad & Aziz Hayat

  2. Department of Accounting and Finance, College of Business Administration, Prince Mohammad Bin Fahad University, 617 Al Jawharah, 34754, Khobar, Dhahran, Saudi Arabia

    Huson Joher Ali Ahmed

Authors
  1. A. S. M. Sohel Azad
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Aziz Hayat
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Huson Joher Ali Ahmed
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Aziz Hayat.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Azad, A.S.M.S., Hayat, A. & Ahmed, H.J.A. Does the energy sector serve as a hedge and safe haven?. Ann Oper Res 339, 369–395 (2024). https://doi.org/10.1007/s10479-023-05707-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10479-023-05707-6

Keywords

JEL Classification