Responsible investments reduce market risks
Giacomo Morelli () and
Rita D’Ecclesia ()
Additional contact information
Giacomo Morelli: Sapienza University of Rome
Rita D’Ecclesia: Sapienza University of Rome
Decisions in Economics and Finance, 2021, vol. 44, issue 2, No 31, 1233 pages
Abstract Responsible investments are considered one of the driving factors of revenues growth enhancing risk-adjusted returns. This paper investigates the effects of responsible investments on the volatility of European stock returns. First, we exploit an expectation–maximization (E–M) algorithm to cluster the companies into two groups according to the Environmental score (E), used as a proxy for responsible investments. Second, we build one global minimum variance (GMV) portfolio within each group and estimate its volatility using ARCH-type models. Finally, we forecast well-known risk measures such as the value-at-risk (VaR) and the expected tail loss (ETL) to assess market risks for investing green. Responsible portfolios composed of stocks with high E score outperform their Low E counterparts and are shown to be safer choices to mitigate risks, especially during periods of market distress. The results are remarkable for many sectors.
Keywords: Responsible investments; Environmental score; Portfolio optimization; Market risks; C38; C58; C61; Q50 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10203-021-00351-w Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:decfin:v:44:y:2021:i:2:d:10.1007_s10203-021-00351-w
Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10203/PS2
Access Statistics for this article
Decisions in Economics and Finance is currently edited by Paolo Ghirardato
More articles in Decisions in Economics and Finance from Springer, Associazione per la Matematica
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().