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Is greenness an optimal hedge for sectoral stock indices?

Md Akhtaruzzaman, Ameet Kumar Banerjee, Wafa Ghardallou and Zaghum Umar

Economic Modelling, 2022, vol. 117, issue C

Abstract: The paper examines the role of green bonds in hedging the risk against industry portfolios and other major asset classes. It mainly focuses on how the greenness of the portfolio reduces the risk of green portfolios containing green bonds and 11 industrial sectors and major financial assets from October 2014 to November 2021. The results show that the risk of green portfolios is lower than that of unhedged (non-green) portfolios. Furthermore, our study provides evidence that the hedging effectiveness of green portfolios improves during the COVID–19 pandemic. Finally, the results show that investors across the risk aversion spectrum gain higher utility after considering the transaction costs while investing in green portfolios. These results are new additions to prior literature that can interest investors, fund managers, and policymakers.

Keywords: Sustainable finance; Greenness; Green bonds; Hedge ratio; SDG; Hedging effectiveness; Green Finance (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G23 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.econmod.2022.106030

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