Does green improve portfolio optimisation?

Md Akhtaruzzaman, Ameet Kumar Banerjee, Sabri Boubaker and Faten Moussa

Energy Economics, 2023, vol. 124, issue C

Abstract: Our study uses the GARCH-EVT-copula model to develop out-of-sample forecasts for diverse asset classes, including a green asset. To construct optimal portfolios, we apply four different portfolio allocation techniques: equal weighting, minimum variance, global minimum variance (GMV), and certainty equivalence tangency (CET) criteria. The results demonstrate that the GMV portfolio outperforms other portfolios in risk measures. Further, backtesting evidence shows that the portfolio containing a green asset performs better than the benchmark for short horizons. The results have implications for fund managers and policymakers since green asset provides valuable diversification benefits and further the cause of sustainable development.

Keywords: Green finance; Greenness; Social development goals (SDGs); Green asset; CVaR; VaR; Portfolio optimisation (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 G19 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:124:y:2023:i:c:s0140988323003298

DOI: 10.1016/j.eneco.2023.106831

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