Are alternative energies a real alternative for investors?

Abstract

Fossil fuels supply most of the energy we need for many functions but alternative energy global consumption is expected to increase in the future supported by great incentives, advances in technologies, and the depletion of fuel oil reserves. In that context, investors begin to consider the possibility of investing in the alternative energy sector using different assets such as the Exchange Traded Funds (ETFs). We evaluate the out-of-sample performance of four strategies using the returns and volatility forecasts from a VAR-ADCC approach. We provide evidence that Alternative Energy ETFs clearly outperform Energy ETFs and, therefore, they are a real alternative for investors. These findings are relevant not only for academics but also for active professional managers who can use this technique to add value to their investment strategies.