Risk and Performance of European Green and Conventional Funds

Tiago Gonçalves (), Diego Pimentel and Cristina Gaio
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Diego Pimentel: ISEG—Lisbon School of Economics & Management, Universidade de Lisboa, 1200-781 Lisboa, Portugal
Cristina Gaio: Advance/CSG, ISEG—Lisbon School of Economics & Management, Universidade de Lisboa, 1200-781 Lisboa, Portugal

Sustainability, 2021, vol. 13, issue 8, 1-17

Abstract: This paper analyzes how the risk-adjusted returns of green funds compare to those of conventional funds, between the years 2005 and 2020 for the European Union countries. Additionally, we tested how the performance of green funds correlates to the business cycle, subdividing their performance through expansionary and recessionary times. The findings are summarized as follows: our regression results demonstrated green and conventional funds exhibiting negative abnormal adjusted-returns against the developed world market benchmark for the single-factor and multifactor models. For the European market benchmark, we found environmental mutual funds presenting a positive performance for both models and conventional funds displaying negative results for the single-factor model and positive results for the multifactor model. The factor loadings for green funds indicated a negative load on momentum, book-to-market (HML) and size (SMB) factors, revealing a higher exposure to big and value companies. Subsampling per business cycle exhibited green mutual funds providing higher risk-adjusted returns to investors during crisis periods and mixed results for the non-crisis periods.

Keywords: ESG; green funds; conventional funds; performance; risk; sustainable; investments (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:8:p:4226-:d:533762

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