Are clean and black energy exchange-traded funds driven by climate risk?

Abstract

ABSTRACT This research paper analyzes the connectivity and spillover effects of climate uncertainty policy in exchange-traded funds (ETFs) on clean and black energy. Using monthly data for the period from July 2008 to August 2022, the cDCC-GARCH model and the Diebold and Yilmaz index model approach were applied, revealing connectivity between clean and black energy assets, as well as between these and climate risk, with the latter producing a positive effect on the returns of clean energy assets, contrary to what happens in black energy counterparts. Our results also show that in phases of high climate uncertainty, clean energy assets can help hedge the risk of the black energy segment. In phases of financial turbulence, namely those corresponding to the pandemic crisis and the war in Ukraine, there was a marked intensification in the information transmission processes, giving rise to closer patterns of behavior by the assets studied.