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Should investors include green bonds in their portfolios? Evidence for the USA and Europe |
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| Institution: | 1. School of Economics and Finance, Massey University, Auckland, New Zealand;2. UCD College of Business, University College Dublin, Ireland;3. School of Economics and Finance, Massey University, Auckland, New Zealand;4. School of Accountancy Economics and Finance, University of Wollongong, Australia;5. School of Government, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam;6. Tokai University, Kanagawa, Japan;1. Economics Department, University of Central Oklahoma, 100 N University Dr, Edmond, 73034, USA;2. School of Public Finance, University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu, District 3, Ho Chi Minh City, 700000, Viet Nam;1. Université Paris-Saclay, Univ Evry, EPEE, 91025, Evry-Courcouronnes, France;2. ESC Clermont Business School & CleRMa, 4 boulevard Trudaine, 63000 Clermont-Ferrand, France |
| 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. |
| Keywords: | Green bonds Portfolio diversification Conditional value-at-risk Dynamic R-vine copula |
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