Modelling connectedness and diversification among socially responsible investments in Asia

Neha Seth and Deepti Singh

International Journal of Sustainable Economy, 2025, vol. 17, issue 2, 123-146

Abstract: The study investigates the cointegration and volatility interdependence among sustainable indices of emerging Asian countries by employing Johansen's cointegration, Granger causality test and dynamic conditional correlation (DCC) GARCH model. The analysis reveals no long-run relationship among these indices, and all the indices are significantly affected by their lagged values. The results also present that past shocks and volatility have a significant role in the present volatility of the sustainable indices. However, past volatility has more impact, which lasts with stronger persistence. The significant DCC terms infer that volatility spillover exists between sustainable Asian markets. The study also calculated optimal portfolio weights to provide better diversification opportunities to minimise the risks without hampering the potential returns. The study suggests that long-term investors may earn profit by adding these non-integrated sustainable indices to their portfolios, but they must diversify and hedge to safeguard from losses during economic and financial turmoil.

Keywords: volatility spillover; Johansen's cointegration; DCC-GARCH; sustainable stock index; optimal portfolio weights; emerging Asia. (search for similar items in EconPapers)
Date: 2025
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