Risk spillovers between Chinese new energy futures and carbon-intensive assets: Asymmetric effect, time–frequency dynamics, and portfolio strategies

Abstract

This study investigates the asymmetric time–frequency risk spillovers between Chinese new energy futures and carbon-intensive assets by using a time-varying parameter vector autoregressive connectedness approach. The results reveal that, in both the return and volatility spillover cases, industrial silicon futures and lithium carbonate futures generally are the net receivers of risk spillovers as regards the relationships with carbon-intensive sectoral stocks and fossil energy futures. In addition, there exists an asymmetric spillover effect, where spillovers based on bad news are higher than those based on good news. Meanwhile, return and volatility spillovers are extremely intensive in the short term as compared to the medium the long term. Finally, this study develops portfolio strategies by constructing bivariate and multivariate portfolios comprised of new energy futures and carbon-intensive assets. The bivariate portfolio analysis indicates that industrial silicon futures and lithium carbonate futures can well hedge against carbon-intensive sectoral stocks. The multivariate portfolio analysis shows that allocating the smallest share of petrochemical stocks and steel stocks can mitigate investment risks. These findings have important implications for investors and policymakers.