Do green assets enhance portfolio optimization? A multi-horizon investing perspective

Dongna Zhang, Xingyu Dai and Qunwei Wang

The British Accounting Review, 2025, vol. 57, issue 5

Abstract: We examine the out-of-sample performance of adding green assets to a stock-bond-commodity benchmark portfolio as EU investors across seven investment horizons. By employing eight portfolio optimization techniques, we find that incorporating green assets leads to statistically significant improvement in the Sharpe ratio across different investment horizons and risk preferences. The Sharpe ratio, Sortino ratio, and return-loss demonstrate improvement as investment horizon lengthens. Over the long-run horizon, green assets are more beneficial for risk-tolerant investors compared to risk-averse investors. The Data Envelopment Analysis confirms that green assets contribute to a more pronounced improvement in efficiency for risk-tolerant investors. The results remain robust with alternative dataset and transaction cost setting. Our findings offer implications for investors and policymakers to promote green finance.

Keywords: Green finance; Sustainable finance; Portfolio optimization; Investment horizon; ESG index; Green bonds (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:57:y:2025:i:5:s0890838925000629

DOI: 10.1016/j.bar.2025.101612

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