Time-varying price dynamics of clean and dirty energy portfolios

• Published in: Journal of environmental management 2023-07, Vol.337, p.117687-117687, Article 117687
• Main Authors: Ah Mand, Abdollah, Ghafoor, Abdul, Sifat, Imtiaz
• Format: Article
• Language: English
• Subjects: Clean energy; Comovement; Dirty energy; Energy economics; Environmental economics; Financial Management; Forecasting; Sustainable investment; United States
• ISSN: 0301-4797; 1095-8630
• DOI: 10.1016/j.jenvman.2023.117687

This paper investigates the dynamic relationships between four key instruments related to clean and dirty energy assets: WTI futures, United States Oil Fund (USO), EnergySelect Sector SPDR Fund (XLE), and iShares Global Clean Energy ETF (ICLN). Econometric tests confirm a long-term relationship between all variables, with causality tests showing that clean energy ETF has a causal influence on most instruments. However, the causal patterns are not definitively interpretable in an economic framework. Moreover, using wavelet-based tests on a 1-min interval transaction dataset, we further find convergence delay between WTI and XLE, and to a lesser extent, USO, but not ICLN. This suggests that clean energy has the potential to be a distinct asset class. We also identify the time scales at which arbitrage opportunities and liquidity movements occur: 32–256 and 4–8 min, respectively. These are new stylized facts about clean and dirty energy market assets and contribute to the limited literature available on high-frequency dynamics in the said markets. [Display omitted] •Four interrelated instruments integral to clean and dirty energy assets are examined.•Econometric tests confirm a long-term relationship between all variables of interest.•Convergence delay between WTI and XLE, and to a lesser extent, USO observed.•Arbitrage opportunities have gradually declined since 2015.•Supports the proposition that clean energy has the potential to be a distinct asset class.