Investing in alternative energy companies : an analysis of risk, return, and the price drivers for solar, wind, hydro and nuclear power companies through exchange traded funds

Abstract

Increasing new investment in alternative energy suggests that investors increase their share of holdings that promote cleaner energy and fewer emissions. This paper examines the performance of six exchange-traded funds (ETFs) that invest globally in alternative energy companies in the period January 2009 to January 2017. Our results show that all the funds except the fund in hydropower underperformed the market in the years following the financial crisis. We also analyse the relationship between the prices of the ETFs, oil, clean technology stocks, natural gas, and the market by using a multi-factor asset pricing model. We find strong influence of the S&P Global 1200 Index and clean technology stocks; however, the influence of WTI Crude Oil and Henry Hub Natural Gas show no significant impact in the multi-factor model. Furthermore, we study the volatility development of the ETFs and look into global policies regarding the alternative energy sector. Our findings suggest that the ETFs have become less risky compared to the market throughout the period despite globally unstable policies.