Can green assets hedge against economic policy uncertainty? Evidence from China with portfolio implications

Yufei Xia, Zhengxu Shi, Xiaoying Du, Mengyi Niu and Rongjiang Cai

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: This paper examines whether green assets can hedge against economic policy uncertainty (EPU) via asymmetric time-varying connectedness and EGARCH models. Using daily data in China spanning from March 2014 to June 2022, we find that (1) an evident asymmetric connectedness exists between green assets and EPU. (2) Green bond, carbon emission allowances and some green stocks can act as hedging or safety-haven assets against EPU, and the conclusion remains robust to an alternative proxy of EPU. (3) The minimum variance and connectedness portfolios provide superior performance during pre- and post-COVID-19 periods, respectively, thereby carrying substantial portfolio implications.

Keywords: Economic policy uncertainty; Green assets; Hedge; TVP-VAR; EGARCH (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002465

DOI: 10.1016/j.frl.2023.103874

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