Quantifying Risk in Traditional Energy and Sustainable Investments

Abstract

These days we are witnessing a deep change in the characteristics of the type of energy that our economies are supplied with. A clear trend is that sustainable and green energies are decisively replacing traditional fossil fuel-based sources of energy. For various reasons, this fundamental change implies an increasing risk in investments on portfolios heavily based on traditional energy industries. What is less known, is that these industries have returns that show a very low correlation with sustainable fossil fuel-free stock portfolios making them an appealing tool for portfolio managers to design properly diversified investments. In this study we examine this and related phenomena proposing statistical methods to implement the expected shortfall (ES), the challenging risk measure recently adopted by the financial regulator. We obtain evidence that a newly proposed backtesting procedure for the ES based on multinomial tests is an adequate and simple method to validate these risk measures when applied to a highly volatile stock index. Backtesting results of the ES show that flexible heavy-tailed distribution α–stable performs well for modelling the loss distribution. These results are even improved when the variances of fossil fuel price returns are included as external regressors in the GARCH model variance equation. In this case, the ES computed from the four considered loss distributions perform properly.

The Influence of Universal and Specific Risks on Quality Management During Implementation of Large-Scale Russian Investment Projects in the Conditions of Uncertainty

“…The problem of risks of the realization of large scale investment projects as a tool of the infrastructural development of territories (such as, for instance, La Manche tunnel, Øresund Bridge between Denmark and Sweden, Vasco da Gama bridge in Portugal and others) was thoroughly studied in the works of the scientists: (Achten et al, 2019;Bayrak, 2018;Bogoviz & Sergi, 2018;Brazill-Boast et al, 2018;Fragkos& Kouvaritakis, 2018;Genoud, 2018;Moreda, 2018;Morozova et al, 2018;Osabuohien et al, 2019;Popkova, 2019); Sergi et al, 2019;Zheng et al, 2019). The problems of risks identification, practical aspects of their realization in historic and current territorial megaprojects and methodological aspects of the assessment and leveling of the risks at different stages of the life cycle of a large scale investment project were studied in the works of the scientists: (Bi & Cai, 2019); Bo et al, 2019;Clark, 2019;Díaz et al, 2019;D'Orazio & Popoyan, 2019;Huang, 2019;Huber & Huber, 2019;Wan et al, 2019;Zhang & Chen, 2019).…”