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Can green investment funds hedge climate risk?

Author

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  • Arfaoui, Nadia
  • Naeem, Muhammad Abubakr
  • Maherzi, Teja
  • Kayani, Umar Nawaz

Abstract

We analyze tail risk dependence between Green Investment Funds (GIFs) and climate risks, emphasizing diversification benefits, safe-haven, and hedge features from 2009 to 2022. Our methodology, using AGDCC-GARCH, time-varying optimal copula (TVOC), and conditional diversification benefits (CDB), reveal various tail dependence regimes, showcasing the role of GIFs in extreme climate events. Symmetrical co-movement, observed during COVID-19 and Russia-Ukraine war, indicates no asymmetric tail dependence. Notably, GIFs offer substantial diversification benefits against climate risks, providing insights for investors and policymakers to formulate proactive strategies in line with sustainability goals.

Suggested Citation

  • Arfaoui, Nadia & Naeem, Muhammad Abubakr & Maherzi, Teja & Kayani, Umar Nawaz, 2024. "Can green investment funds hedge climate risk?," Finance Research Letters, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323013338
    DOI: 10.1016/j.frl.2023.104961
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