Are there other fish in the sea? Exploring the hedge, diversifier and safe-haven features of ESG investments

Luca Pedini and Sabrina Severini

Studies in Economics and Finance, 2024, vol. 42, issue 1, 1-30

Abstract: Purpose - This study aims to conduct an empirical investigation to assess the hedge, diversifier and safe-haven properties of different environmental, social and governance (ESG) assets (i.e. green bonds and ESG equity index)vis-à-visconventional investments (namely, equity index, gold and commodities). Design/methodology/approach - The authors examine the sample period 2007–2021 using the bivariate cross-quantilogram (CQG) analysis and a dynamic conditional correlation (DCC) multivariate generalized autoregressive conditional heteroskedasticity (GARCH) experiment with several extensions. Findings - The evidence shows that the analyzed ESG investments exhibit mainly diversifying features depending on the asset class taken as a reference, with some potential hedging/safe-haven qualities (for the green bond) in peculiar timespans. Therefore, the results suggest that investors might consider sustainable investing as a new measure of risk reduction, which has interesting implications for both portfolio allocation and policy design. Originality/value - To the best of the authors’ knowledge, this study is the first that empirically investigates at once the dependence between different ESG investments (i.e. equity and green bond) with different conventional investments such as gold, equity and commodity market indices over a large sample period (2007–2021). Well-suited methodologies like the bivariate CQG and the DCC multivariate GARCH are used to capture the spillover effect and the hedging/diversifying nature, even in temporary contexts. Finally, a global perspective is used.

Keywords: Cross-quantilogram; DCC GARCH; ESG; Investment strategies; Safe haven; Portfolio allocation; G11; G14; Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-05-2023-0255

DOI: 10.1108/SEF-05-2023-0255

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