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Can green investment funds hedge climate risk?

Nadia Arfaoui, Muhammad Abubakr Naeem, Teja Maherzi and Umar Nawaz Kayani

Finance Research Letters, 2024, vol. 60, issue C

Abstract: We analyze tail risk dependence between Green Investment Funds (GIFs) and climate risks, emphasizing diversification benefits, safe-haven, and hedge features from 2009 to 2022. Our methodology, using AGDCC-GARCH, time-varying optimal copula (TVOC), and conditional diversification benefits (CDB), reveal various tail dependence regimes, showcasing the role of GIFs in extreme climate events. Symmetrical co-movement, observed during COVID-19 and Russia-Ukraine war, indicates no asymmetric tail dependence. Notably, GIFs offer substantial diversification benefits against climate risks, providing insights for investors and policymakers to formulate proactive strategies in line with sustainability goals.

Keywords: Green Investment Funds; Climate transition risk; Climate physical risk; TVOC (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323013338

DOI: 10.1016/j.frl.2023.104961

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