Performance of Equity Investments in Sustainable Environmental Markets

Abstract

Despite a significant increase in global clean energy investments, as part of the decarbonization process, it remains insufficient to meet the demand for energy services in a sustainable manner. This study investigates the performance of sustainable energy equity investments, with focus on environmental markets, using monthly equity index data from 31 August 2009 to 30 December 2022. The main contributions of our study are (i) assessment of the performance of trading strategies based on the trend, momentum, and volatility of Environmental Opportunities (EO) and Environmental Technologies (ET) equity indices; and (ii) comparison of the performance of sustainable equity index investments to fossil fuel-based and major global equity indices. Market performance evaluation based on technical analysis tools such as the Relative Strength Index (RSI), Moving Averages, and Average True Range (ATR) is captured through the Sharpe and the Sharpe per trade. The analysis is divided according to regional, sector, and global EO indices, fossil fuel-based indices, and the key global stock market indices. Our findings reveal that a momentum-based strategy performed best for the MSCI Global Alternative Energy index with the highest excess return per unit of risk, followed by the fossil fuel-based indices. A trend-based strategy worked best for the MSCI Global Alternative Energy and EO 100 indices. The use of volatility-based information yielded the highest Sharpe ratio for EO Europe, followed by the Oil and Gas Exploration and Production industry, and MSCI Global Alternative Energy. We further find that a trader relying on a system which simultaneously provides momentum, trend, or volatility information would yield positive returns only for the MSCI Global Alternative Energy, the S&P Oil and Exploration and Production industry, NYSE Arca Oil, and FTSE 100 indices. Overall, despite the superior performance of the MSCI Global Alternative Energy index when using momentum and trend strategies, most region and sector EOs performed poorly compared to fossil fuel-based indices. The results suggest that the existing crude oil prices continue to allow fossil fuel-based equity investments to outperform most environmentally sustainable equity investments. These findings support that sustainable investments, on average, have yet to demonstrate consistent superior performance over non-renewable energy investments which demonstrates the need for continued, rigorous, and accommodating regulatory policy actions from government bodies in order to reorient significant capital flows towards sustainable equity investments.

The Choice of Cooperative Governance Mechanism in Open Innovation Projects under the Synergy of the Electricity–Carbon Market

“…The achievement of the carbon peak and carbon neutrality goals of the power sector, as well as an effective and extensive carbon trading market, are crucial to achieving the overall goal [3]. The findings of Gurrib et al support the fact that there is an increase in energy efficiency where policymakers in China, Europe, and Japan are placing more emphasis on higher energy standards in construction and encouraging, through government support, the adoption of cleaner technologies, such as electric heat pumps, in light of higher fuel prices restraining consumer purchasing power [4]. At present, both China's carbon market and electricity market are in their infancy and seem to operate independently of each other, but they have a natural connection in terms of trading subjects, trading products, and price correlation, and as the coupling and coordinated development of the electricity and carbon markets has become an inevitable trend, all these relevant topics belong to academic frontier issues [5].…”