Time-varying price dynamics of clean and dirty energy portfolios.

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. [ABSTRACT FROM AUTHOR]

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