Is green investment different from grey? Return and volatility spillovers between green and grey energy ETFs

Investment in Green energy is becoming a popular alternative asset class for investors, primarily due to its environment-friendly attributes. However, there is a dire need for subjective evaluation of this emerging asset class based on the risk-return dynamics to which investors are exposed. To respond to this call, in this study, we conduct this evaluation utilizing a unique and rich data set consisting of daily prices of exchange-traded funds (ETFs) established on different asset classes. We use Vector autoregression and Baba-Engle-Kraft-Kroner parameterization of multivariate GARCH models and assess the relative strength of return and volatility spillovers from the Green and Grey energy markets. Our results reveal the return shocks originated in the Green energy market and transmitted to other markets are more pronounced. It is also observed that the potential to earn high returns and the weak correlation of Green energy ETFs with the traditional asset classes are the crucial factors helpful in inviting attention and investment of investors after 2015. Although our results further suggest that the role of Grey energy is diminishing, as shown by the Impulse response functions and the coefficients of multivariate ARCH and GARCH. Nonetheless, for some asset classes, e.g., Bonds, the volatility spillovers that originated in the Grey energy market are still prominent and robust.