Abstract
As investing in clean energy equities grows, a better understanding of the impact of market uncertainty on clean energy systematic risk is required because the systematic risk is used to estimate the cost of capital and to formulate investment strategies. The focus of this paper is to use multivariate GARCH models (ADCC, GO-GARCH) to calculate time-varying conditional clean energy equity betas and to study the impact that market uncertainty (stock market, oil market, technology stock market), measured using implied volatility, has on clean energy equity betas. The clean energy equity beta values show considerable time variation. Evidence is presented to show that implied volatility does have a significant impact on clean energy equity beta. This result is consistent with a mean reversion response of beta to increases in market volatility and is robust to the choice of GARCH model used to estimate beta.
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Notes
- 1.
The rotation matrix U needs to be estimated. For all but a few factors, maximum likelihood is not feasible. For a larger number of factors alternative estimation methods must be used. ICA is a fast statistical technique for estimating hidden factors in relation to observable data.
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Sadorsky, P. (2022). The Impact of Market Uncertainty on the Systematic Risk of Clean Energy Stocks. In: Floros, C., Chatziantoniou, I. (eds) Applications in Energy Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-92957-2_7
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