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Diversification and optimal hedges for socially responsible investment in Brazil

Ana Iglesias (), Maria-Celia Penabad (), Carmen Lopez-Andion () and José Manuel Maside-Sanfiz

Economic Modelling, 2020, vol. 85, issue C, 106-118

Abstract: This study contributes to the literature on socially responsible investing by examining the diversification potential of commodities, specifically oil, gold and clean energy together with the Brazilian Corporate Sustainability Index (ISE). Multivariate GARCH models are used to model volatility spillovers and conditional correlation in pairs of stocks containing ISE. Specifically, A-BEKK and A-DCC models with spillovers are estimated. The models’ results are used to compute and analyze the optimal weights and hedge ratios for stock portfolio holdings. The greatest benefit from diversification is obtained through the acquisition of gold and then OVX.

Keywords: Volatility spillovers; ISE; Hedging; A-DCC; A-BEKK; OVX (search for similar items in EconPapers)
JEL-codes: C32 G11 Q40 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econmod.2019.05.010

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