What is it about?
We sort 271 European-domiciled equity mutual funds based on their ESG score to construct equivalent indices and examine their interaction with the most traded asset classes such as equities, bonds, real estate, crude oil, gold, and currency, for the period 1/1/2010-5/31/2024.
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Why is it important?
The empirical findings demonstrate moderate volatility spillovers, primarily transmitted from the ESG-low index, whereas the conventional markets absorb the diffused shocks. Our hedging analysis reveals that ESG stocks can effectively mitigate risk for investors holding long positions in crude oil, real estate, gold, and equities. While ESG-low produces higher hedging effectiveness than ESG-high for the overall period, including the pandemic, ESG-high has proven to be a better hedge during the armed conflict.
Perspectives
The empirical findings demonstrate moderate volatility spillovers, primarily transmitted from the ESG-low index, whereas the conventional markets absorb the diffused shocks. Our hedging analysis reveals that ESG stocks can effectively mitigate risk for investors holding long positions in crude oil, real estate, gold, and equities. While ESG-low produces higher hedging effectiveness than ESG-high for the overall period, including the pandemic, ESG-high has proven to be a better hedge during the armed conflict.
Dr Spyros Papathanasiou
National and Kapodistrian University of Athens
Read the Original
This page is a summary of: A trade-off between sustainability ratings and volatility in portfolio hedging strategies, International Journal of Banking Accounting and Finance, January 2024, Inderscience Publishers,
DOI: 10.1504/ijbaaf.2024.142715.
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