Volatility spillover and investment strategies among sustainability-related financial indexes: Evidence from the DCC-GARCH-based dynamic connectedness and DCC-GARCH t-copula approach |
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| Institution: | 1. Department of Finance, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton, 3240, New Zealand;2. Graduate School of Business and Law, RMIT University, 379-405 Russell St., Melbourne, VIC 3000, Australia;1. Department of Economics & Finance, Durham University, Durham DH1 3LB, UK;2. Department of Economics, Faculty of Commerce, Zagazig University, Egypt;3. Department of Finance and Investment, College of Economics and Administrative Sciences, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia;4. University of Sfax, Higher Institute of Business Administration, Tunisia;5. Department of Economics, Lahore College for Women University Lahore, Pakistan;6. Indian Institute of Management Bodh Gaya, Bodh Gaya, India;1. School of Business, Central South University, Changsha 410083, China;2. Institute of Metal Resources Strategy, Central South University, Changsha 410083, China;3. School of Economics and Management, China University of Mining and Technology, Xuzhou 221116, China |
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| Abstract: | This study analyzes the dynamic connectedness between the ESG stock index, the renewable energy stock index, the green bond stock index, the sustainability stock index, and the carbon emission futures by employing a novel method: the DCC-GARCH-based dynamic connectedness approach. Given the strong volatility spillover among these indexes, we adopt the DCC-GARCH t-copula model to calculate these indexes' hedging ratios and portfolio weights. Our findings show that the carbon emission futures are the volatility transmitter, and the green bond is the volatility receiver. The total dynamic connectedness is affected by international political, economic, and other events. Furthermore, for stock market volatility investors, taking the long position in carbon emission futures and the short position in renewable energy stock can achieve the highest hedging effect. |
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