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Dynamic spillovers and portfolio implication between green cryptocurrencies and fossil fuels
Zaghum Umar1, Sun-Yong Choi2, Tamara Teplova3
1College of Business, Zayed University, Abu Dhabi, United Arab Emirates.
Plos One
|August 3, 2023
Summary
Green cryptocurrencies transmit financial shocks and show hedging effectiveness against fossil fuels. Their dynamic connectedness increased during global crises, impacting sustainable investment strategies.
Area of Science:
- Environmental Finance
- Digital Assets
- Sustainable Investing
Background:
- Growing interest in Environmental, Social, and Governance (ESG) assets.
- Uncertainty regarding the decoupling of green investments from traditional markets like fossil fuels.
- Need to understand the role of digital ESG assets, specifically green cryptocurrencies.
Purpose of the Study:
- To examine the dynamic relationship between fossil fuels and green cryptocurrencies.
- To assess the shock transmission and hedging capabilities of green cryptocurrencies.
- To provide insights for investors and policymakers on sustainable asset integration.
Main Methods:
- Utilizing the Time-Varying Parameter Vector Auto Regression (TVP-VAR) spillover framework.
- Analyzing dynamic connectedness and shock transmissions.
- Employing a minimum connectedness framework to evaluate hedging attributes.
Main Results:
- Green cryptocurrencies identified as primary transmitters of shocks across asset systems.
- Increased dynamic connectedness observed between green cryptocurrencies and fossil fuels during COVID-19 and the Russia-Ukraine conflict.
- Green cryptocurrencies demonstrated significant hedging effectiveness against fossil fuel market volatility.
Conclusions:
- Green cryptocurrencies are interconnected with fossil fuel markets, especially during crises.
- Investors and policymakers should consider the hedging potential of green cryptocurrencies.
- Findings support the promotion of eco-friendly assets and carbon footprint regulation.
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