Understanding dynamic return connectedness and portfolio strategies among international sustainable exchange-traded funds
Year: 2024
Type: article
Abstract: The rapid growth of sustainable investing has led to the global expansion of environmental, social, and governance (ESG) investment products. Existing literature on sustainable investing focuses primarily on corporate social responsibility theory and risk assessment, with relatively little research on ESG investment value and portfolio strategies. Using data from six worldwide ESG exchange-traded funds (ETFs) between 2020 and 2023, we examine return connectedness and portfolio performance by employing a time-varying parameter vector autoregressive (TVP-VAR) and portfolio approaches. The findings reveal that European ETF plays a dominant role in the worldwide ESG system due to the market size and market maturity. Specifically, the European ETF can substantially reduce portfolio volatility. Moreover, the results show that minimum variance and risk-parity portfolios outperform the other portfolio strategies during periods of geopolitical turmoil. These results provide valuable insights for improving the resilience of ESG markets and enhancing sustainable investment strategies.
Source: Economic Modelling
Authors: Danyang Xu, Shaen Corbet, Chunlin Lang, Yang Hu
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,140
OpenAlex ID: W4402042115