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Hedging potentials of green investments against climate and oil market risks

Adediran, Idris A; Swaray, Raymond; Orekoya, Aminat O; Kabir, Balikis A


Idris A Adediran

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Dr Raymond Swaray
Senior Lecturer (Associate Professor) in Economics

Aminat O Orekoya

Balikis A Kabir


Purpose: This study examines the ability of clean energy stocks to provide cover for investors against market risks related to climate change and disturbances in the oil market.
Design/methodology/approach: The study adopts the Feasible Quasi Generalized Least Squares technique to estimate a predictive model based on Westerlund and Narayan’s (2015) approach to evaluating the hedging effectiveness of clean energy stocks. The out-of-sample forecast evaluations of the oil risk-based and climate risk-based clean energy predictive models are explored using Clark and West’s model (2007) and a modified Diebold & Mariano forecast evaluation test (Harvey et al., 1997) for nested and non-nested models respectively.
Findings: The study finds ample evidence that clean energy stocks may hedge against oil market risks. This result is robust to alternative measures of oil risk and holds when applied to data from the COVID-19 pandemic. In contrast, the hedging effectiveness of clean energy against climate risks is limited to 4 of the 6 clean energy indices and restricted to climate risk measured with Climate Policy Uncertainty.
Originality/value: The study contributes to the literature by providing extensive analysis of hedging effectiveness of several clean energy indices (global, US, Europe, and Asia) and sectoral clean energy indices (solar and wind) against oil market and climate risks using various measures of oil risk (WTI and Brent volatility) and climate risk (Climate Policy Uncertainty and Energy and Environmental Regulation) as predictors. It also conducts forecast evaluations of the clean energy predictive models for nested and non-nested models.


Adediran, I. A., Swaray, R., Orekoya, A. O., & Kabir, B. A. (2023). Hedging potentials of green investments against climate and oil market risks. Fulbright Review of Economics and Policy,

Journal Article Type Article
Acceptance Date Mar 14, 2023
Online Publication Date Apr 11, 2023
Publication Date 2023
Deposit Date Apr 12, 2023
Publicly Available Date Apr 13, 2023
Journal Fulbright Review of Economics and Policy
Print ISSN 2635-0173
Publisher Emerald
Peer Reviewed Peer Reviewed
Keywords Clean energy stocks; Oil risk; Climate risk, Hedging; Forecast evaluation
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Copyright Statement
© Idris A. Adediran, Raymond Swaray, Aminat O. Orekoya and Balikis A. Kabir. Published in Fulbright Review of Economics and Policy. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at

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