Risk spillovers across the energy and carbon markets and hedging strategies for carbon risk

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dc.contributor.author Balcilar, Mehmet
dc.contributor.author Demirer, Rıza
dc.contributor.author Hammoudeh, Shawkat
dc.contributor.author Nguyen, Duc Khuong
dc.date.accessioned 2016-08-05T06:52:19Z
dc.date.issued 2016-02
dc.description.abstract This study examines the risk spillovers between energy futures prices and Europe-based carbon futures contracts. We use a Markov regime-switching dynamic correlation, generalized autoregressive conditional heteroscedasticity (MS-DCC-GARCH) model in order to capture the time variations and structural breaks in the spillovers. We further evaluate the optimal weights, hedging effectiveness, and dynamic hedging strategies for the MS-DCC-GARCH model based on both the regime dependent and regime independent optimal hedge ratios. We finally complement our analysis by examining the in- and out-of sample hedging performances for alternative strategies. Our results mainly show significant volatility and time-varying risk transmission from energy markets to carbon market. We also find that spot and futures segments of the emission markets exhibit time-varying correlations and volatile hedging effectiveness. The subsample estimates show significant changes in the hedge effectiveness over the different phases of the European carbon market. These results have important investment and policy implications. en_ZA
dc.description.department Financial Management en_ZA
dc.description.embargo 2017-02-28
dc.description.librarian hb2016 en_ZA
dc.description.uri http://www.elsevier.com/locate/eneco en_ZA
dc.identifier.citation Balcilar, M, Demirer, R, Hammoudeh, S & Nguyen, DK 2016, 'Risk spillovers across the energy and carbon markets and hedging strategies for carbon risk', Energy Economics, vol. 54, pp. 159-172 en_ZA
dc.identifier.issn 0140-9883 (print)
dc.identifier.issn 1873-6181 (online)
dc.identifier.other 10.1016/j.eneco.2015.11.003
dc.identifier.uri http://hdl.handle.net/2263/56208
dc.language.iso en en_ZA
dc.publisher Elsevier en_ZA
dc.rights © 2015 Elsevier B.V. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Energy Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Energy Economics, vol. 54, pp. 159-172, 2016. doi : 10.1016/j.eneco.2015.11.003. en_ZA
dc.subject Multivariate regime-switching en_ZA
dc.subject Time-varying correlations en_ZA
dc.subject Hedging en_ZA
dc.subject CO2 allowance prices en_ZA
dc.subject Markov regime-switching dynamic correlation, generalized autoregressive conditional heteroscedasticity (MS-DCC-GARCH) model en_ZA
dc.title Risk spillovers across the energy and carbon markets and hedging strategies for carbon risk en_ZA
dc.type Postprint Article en_ZA


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