Nonlinear spillover and portfolio allocation characteristics of energy equity sectors: Evidence from the United States and Canada

We investigate the nonlinear spillover and portfolio allocation characteristics of the US and Canadian energy equity portfolios. Our empirical study based on directional spillover index and non‐convex portfolio optimization show that the spillover effects in the aggregate are smaller for the US port...

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Bibliographic Details
Published inReview of international economics Vol. 30; no. 1; pp. 1 - 33
Main Authors Arreola Hernandez, Jose, Kang, Sang Hoon, Yoon, Seong‐Min
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.02.2022
Subjects
directional spillovers
Economic crisis
energy sectors
Optimization
portfolio optimization
portfolio risk
Portfolios
Canada
United States > US
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Summary:We investigate the nonlinear spillover and portfolio allocation characteristics of the US and Canadian energy equity portfolios. Our empirical study based on directional spillover index and non‐convex portfolio optimization show that the spillover effects in the aggregate are smaller for the US portfolio across time. However, when only the largest spillover transmitters and receivers are considered, the total spillover effects are lower for the Canadian portfolio relative to the US portfolio. These portfolio optimization results indicate lower portfolio allocation risk for the Canadian energy equities during the global financial crisis of 2008 and for the full sample period.
Bibliography:Funding information
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF‐2020S1A5B8103268).
ISSN:0965-7576
1467-9396
DOI:10.1111/roie.12553