Should investors include green bonds in their portfolios? Evidence for the USA and Europe

Yingwei Han and Jie Li

International Review of Financial Analysis, 2022, vol. 80, issue C

Abstract: The green bond market has seen a rapid growth world widely in recent years. This paper explores the role of green bonds in asset allocation using the dynamic R-vine copula-based mean-CVaR approach. We compare the performance of portfolios including green bonds with that of portfolios including conventional bonds in the U.S. and European markets. Empirical results show that portfolios with green bonds outperform portfolios with conventional bonds in terms of risk-adjusted returns in the majority of cases in both markets. The benefit of green bonds comes from both the increase in the return and the decrease in the volatility for most of the cases. Overall, our findings suggest that green bonds are beneficial to investors.

Keywords: Green bonds; Portfolio diversification; Conditional value-at-risk; Dynamic R-vine copula (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:80:y:2022:i:c:s1057521921003136

DOI: 10.1016/j.irfa.2021.101998

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