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Unveiling the diversification capabilities of carbon markets in NFT portfolios

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  • Díaz, Antonio
  • Esparcia, Carlos
  • Huélamo, Diego

Abstract

This empirical study investigates the potential of carbon markets in reducing the downside risk of NFT portfolios. Employing a monthly rebalance experiment and considering higher order conditional moments, we dynamically measure the tail risk of NFT portfolios over an out-of-sample period. Our results show that introducing CO2 emission allowance (EUA) futures in NFT portfolios allows for a systematic mitigation of risk via reduction of volatility and kurtosis and steepening of skewness. Empirical evidence also reveals the outperformance of NFT portfolios that include EUA futures.

Suggested Citation

  • Díaz, Antonio & Esparcia, Carlos & Huélamo, Diego, 2023. "Unveiling the diversification capabilities of carbon markets in NFT portfolios," Finance Research Letters, Elsevier, vol. 58(PD).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010048
    DOI: 10.1016/j.frl.2023.104632
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    Cited by:

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    More about this item

    Keywords

    Carbon markets; Co-skewness; Co-kurtosis; Modified vaR; NFT;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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