Do ESG investments improve portfolio diversification and risk management during times of uncertainty

Hachmi Ben Ameur, Zied Ftiti and Wael Louhichi

Journal of International Financial Markets, Institutions and Money, 2025, vol. 103, issue C

Abstract: This study aims to assess whether the statistical properties of ESG assets contribute to portfolio resilience, mitigate market volatility, and enhance diversification. Specifically, we focus on variations in the tails of the return distribution, highlighting potential asymmetries in risk exposure. We use weekly ESG and conventional indicesacross various regions from January 2017 to May 2023. Empirically, we augment themean-conditional value at risk (CVaR) optimisation technique, by introducing geopolitical risk as an exogenous factor. First,ESG indices enhance portfolio diversification while reducing exposure to extreme market movements and geopolitical uncertainty.Second, incorporating ESG assets is advantageous for both sustainable investment and effective financial risk management, presenting a viable option for investors pursuing both financial and sustainability objectives. Moreover, our results remainrobust under incremental CVaR approachand align with thetime-varying sensitivity of ESG and conventional indices to geopolitical risk, as shown bybeta dynamics analysis. Our findings offer several insights for investors diversifying their portfolio.

Keywords: Dynamic optimisation; Exogenous shocks; Geopolitical uncertainty; Portfolio optimization; Resilience (search for similar items in EconPapers)
JEL-codes: C61 G01 G11 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443125000897
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:103:y:2025:i:c:s1042443125000897

DOI: 10.1016/j.intfin.2025.102199

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().