Risk Mitigation and Return Resilience for High Yield Bond ETFs with ESG Components

Takashi Kanamura

Finance Research Letters, 2021, vol. 41, issue C

Abstract: The objective of this study is to investigate the effects of ESG components on financial products by using high yield bond exchange traded funds (ETFs). For the objective, we propose a new price correlation and volatility model between an existing financial market such as conventional high yield bond ETFs and a new financial market such as ESG high yield bond ETFs, in which the former affects the latter. Empirical studies show that ESG factors have hedging effects to the downside risk of conventional high yield bond ETF prices in the Covid-19 shocks of March, 2020 from the positive impacts of conventional high yield bond ETF prices on the correlations with ESG ones by using ESG high yield corporate bond ETFs of the Nuveen and the iShares compared with a conventional high yield bond ETF of the SPDR Bloomberg Barclays. Additionally, high yield bond ETFs that take ESG into account are observed to reduce risk compared to a conventional high yield bond ETF. Results also show that ESG high yield bond ETF returns are higher than conventional high yield bond ETF returns in the Covid-19 shocks. The implication from these results is that the value of ESG investing lies in the mitigation of risks and the resilience of expected returns.

Keywords: ESG; high yield bond ETF; risk mitigation; resilient return; Covid-19 (search for similar items in EconPapers)
JEL-codes: G01 G12 Q01 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316809

DOI: 10.1016/j.frl.2020.101866

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