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Should investors include green bonds in their portfolios? Evidence for the USA and Europe

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  • Han, Yingwei
  • Li, Jie

Abstract

The green bond market has seen a rapid growth world widely in recent years. This paper explores the role of green bonds in asset allocation using the dynamic R-vine copula-based mean-CVaR approach. We compare the performance of portfolios including green bonds with that of portfolios including conventional bonds in the U.S. and European markets. Empirical results show that portfolios with green bonds outperform portfolios with conventional bonds in terms of risk-adjusted returns in the majority of cases in both markets. The benefit of green bonds comes from both the increase in the return and the decrease in the volatility for most of the cases. Overall, our findings suggest that green bonds are beneficial to investors.

Suggested Citation

  • Han, Yingwei & Li, Jie, 2022. "Should investors include green bonds in their portfolios? Evidence for the USA and Europe," International Review of Financial Analysis, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finana:v:80:y:2022:i:c:s1057521921003136
    DOI: 10.1016/j.irfa.2021.101998
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    More about this item

    Keywords

    Green bonds; Portfolio diversification; Conditional value-at-risk; Dynamic R-vine copula;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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