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Dynamic Connectedness Among Alternative and Conventional Energy ETFs Based on the TVP-VAR Approach

Author

Listed:
  • Joanna Górka

    (Department of Econometrics and Statistics, Nicolaus Copernicus University in Torun, 87-100 Toruń, Poland
    These authors contributed equally to this work.)

  • Katarzyna Kuziak

    (Department of Financial Investments and Risk Management, Wroclaw University of Economics and Business, 53-345 Wrocław, Poland
    These authors contributed equally to this work.)

Abstract

This study investigates risk transmission in the US energy instrument market to determine if certain factors, such as crude oil and natural gas, influence this market and whether stock or energy investment portfolios track their behavior. To investigate volatility spillover, the VAR-based connectedness approach is applied. This approach facilitates the measurement of interdependence across a network of variables, providing insights into aggregate, directional, and net interdependence. The use of the time-varying parameter vector autoregression (TVP-VAR) approach, as developed by Antonakakis and Gabauer, avoids the problems associated with selecting rolling window sizes and the resultant loss of observations during estimations. The analysis revealed a distinction between alternative and traditional ETFs, with lower interdependence observed among the volatility of alternative energy ETFs. While most energy ETFs transmit risk within the systems analyzed, some act as risk receivers, though their net receiving/transmitting character fluctuates. The results of this study are significant for investment portfolio managers.

Suggested Citation

  • Joanna Górka & Katarzyna Kuziak, 2024. "Dynamic Connectedness Among Alternative and Conventional Energy ETFs Based on the TVP-VAR Approach," Energies, MDPI, vol. 17(23), pages 1-29, November.
    • Handle: RePEc:gam:jeners:v:17:y:2024:i:23:p:5929-:d:1529737
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