Clean Energy Stock Market and Energy/Metals as Safe-Haven Assets: New Insights from Quantile-on-Quantile and Markov-Switching Approaches

In this study, we propose a novel methodology for selection of appropriate safe-haven assets to mitigate the risks of investment in clean energy and to enhance returns, especially in times of turbulence. Our methodology is supported by the use of quantile-on-quantile regression to capture the dependence structure between the clean energy equity returns and various potential safe-haven asset candidates, with an emphasis on the technique of Markov-switching regime, which enables separation of common and idiosyncratic shocks allowing an in-depth analysis of safe haven properties according to sources of risk to which the clean energy market is confronted. Our main empirical results show a nonlinear connection between our safe haven candidates and clean energy equity returns during their lowest quantiles. However, for times of turbulent episodes, our evidence (including hedging-effectiveness analysis) shows that only platinum or commodity company stocks can hedge the clean energy equities against common shock such as the COVID-19. Moreover, gold or silver can be efficient hedging instruments for investors in the clean energy market only against idiosyncratic shock.