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ID:
177441
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| Summary/Abstract |
The transition to a low-carbon economy poses significant challenges for investors in energy markets, entailing higher uncertainty and not just higher risks. On the back of the ongoing greening in investment preferences, we focus on investors' group behaviour with respect to U.S. energy equities, which lie at the crossroads in this energy transition phase from an old technology that relies heavily on oil, to a new, greener one. Based on a dynamic herding metric, we find that changes in investors' behaviour with respect to green asset allocations require a better information set than in the case of crude oil allocations, for which only information on returns is a relevant driver of behaviour. We argue that policy uncertainty is better than financial risk proxies in reflecting the multidimensional nature of uncertainty and the various risks associated with investing in green energy today. Our findings suggest the need to reduce uncertainty stemming from the policy realm, given its raising impact on investors’ portfolios on the back of higher allocations towards greener assets.
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| 2 |
ID:
191313
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| Summary/Abstract |
Donald Trump’s use of Twitter was unprecedented. Many of Trump’s strong statements in reference to the U.S. oil & gas industry were intended to advertise his domestic policy agenda aimed at supporting re-industrialization and investment. Did his Twitter messages actually reach domestic oil producers, refiners and transport operators, or rather speculators willing to financially gamble on new information sources? To answer, we look at the WTI-Brent spread, which commonly reflects supply bottlenecks in the U.S. crude oil sector. We use a nonlinear modelling approach where Trump’s tweets are allowed to impact the persistence of market volatility regimes. We find that some of his tweets increase the likelihood of wider spreads, undermining the global status of the WTI benchmark. There is also a negative market impact on proxies for liquidity and speculative activity. Policy recommendations are outlined to counteract the consequences of market speculative behaviour driven by political noise.
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