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Incorporating green assets in equity portfolios

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  • Lalwani, Vaibhav

Abstract

We test whether the inclusion of green asset ETFs in portfolios yields better outcomes for investors. We use a mean-variance optimization framework to construct optimal portfolios with and without green assets and compare their performance over different time horizons and market conditions. Our results show that the portfolios that combine green assets with other broader market indices generate higher returns and Sharpe ratios compared to benchmark portfolios. These results survive the incorporation of transaction costs and removal of the COVID-19 period from the sample. Further, we find that the probability of outperforming the benchmark is much higher for long-horizon investors in green asset portfolios.

Suggested Citation

  • Lalwani, Vaibhav, 2024. "Incorporating green assets in equity portfolios," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s154461232301187x
    DOI: 10.1016/j.frl.2023.104815
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    References listed on IDEAS

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    Cited by:

    1. Mohammed, Kamel Si & Serret, Vanessa & Urom, Christian, 2024. "The effect of green bonds on climate risk amid economic and environmental policy uncertainties," Finance Research Letters, Elsevier, vol. 62(PA).

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    More about this item

    Keywords

    Sustainable finance; Green investments; Portfolio choice; Portfolio optimisation; Transaction costs;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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