Do Rare Earth Elements (REEs) hedge financial risk? A spillover and portfolio analysis in the context of the energy market

Abstract

This paper investigates the role of Rare Earth Elements (REEs) as financial hedging instruments in energy markets, analyzing the volatility and returns transmission across series with daily data spanning 2013–2024. Our findings indicate that while REEs initially acted as effective hedges — particularly before the Russia–Ukraine conflict — their ability to mitigate financial risk has weakened due to increased market volatility and geopolitical instability. These results suggest that investors relying on REEs for risk management should reassess their strategies, and policymakers should consider alternative resources to stabilize the clean energy supply chain. The diminishing hedging potential of REEs underscores the need for a diversified strategy in portfolio management and policy frameworks.