The Diversification Benefits of Including Carbon Assets in Financial Portfolios

Zhang, Yinpeng; Liu, Zhixin; Yu, Xueying

doi:10.3390/su9030437

Cited by 23 publications

(18 citation statements)

References 47 publications

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“…In December 1997, the Kyoto Protocol reached an agreement in Kyoto [2,29]. The Kyoto Protocol is an additional term of the United Nations Framework Convention on Climate Change (UNFCCC).…”

Section: Kyoto Protocol and Eu-etsmentioning

confidence: 99%

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The Linkages of Carbon Spot-Futures: Evidence from EU-ETS in the Third Phase

et al. 2020

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Based on the prices selected from European Energy Exchange (EEX) from 2013 to 2018, we investigate the inter-correlation of carbon spot and futures markets. Specifically, we adopt the widely used DCC-GARCH model and VAR-BEKK-GARCH model to conduct a comprehensive analysis on the carbon market, i.e., the dynamic correlation and volatility spillover between carbon spot and carbon futures. Moreover, we develop a hedge strategy based on the VAR-BEKK-GARCH model and calculate the hedging effectiveness (HE) value to evaluate the strategy performance. The empirical results show that (i) during our sample period, carbon spot and futures markets are highly correlated, (ii) carbon spot overflows to the futures market and vice versa, and (iii) the HE value is equal to 0.9370, indicating a good performance for the hedging strategy. Then, we provide further discussion on the relationship between carbon spot and futures markets by replacing our dataset with the data of phase II. The results do not change our conclusions on the dynamic correlation and volatility spillover. However, the HE value of phase III is higher than that of phase II, which indicates that the carbon futures market of phase III is not only an available market to hedge risk from the contemporaneous carbon spot market but also has a better hedge effectiveness than phase II.

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“…In December 1997, the Kyoto Protocol reached an agreement in Kyoto [2,29]. The Kyoto Protocol is an additional term of the United Nations Framework Convention on Climate Change (UNFCCC).…”

Section: Kyoto Protocol and Eu-etsmentioning

confidence: 99%

“…Currently, one of the most thought-provoking issues globally is global warming, given its potential damage to agricultural production, industrial manufacture and human sustainable development [1,2]. Thus, the Kyoto Protocol established three mechanisms for climate change mitigation.…”

Section: Introductionmentioning

confidence: 99%

The Linkages of Carbon Spot-Futures: Evidence from EU-ETS in the Third Phase

et al. 2020

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“…Therefore, many institutional investors regard the carbon market as the object of portfolio investment for risk diversification. As a matter of fact, according to the statistics, the main players on the European Union carbon market are not firms that subject to emission caps, but financial institutions [34]. When the carbon market is in a period of low volatility, more funds enter the market and use the market to diversify risks.…”

Section: Impulse Response Of Carbon Price To Epu In Different Regimesmentioning

confidence: 99%

Impact of Economic Policy Uncertainty on Chinese Carbon Price

Ling-Ling

2019

IJEEE

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There are direct as well as indirect linkages between economic policy uncertainty and carbon market through the channels of market fundamentals. This paper theoretically analyzes the linkages between economic policy uncertainty and carbon price and empirically examines the impact of Chinese economic policy uncertainty on Hubei carbon prices. A two-regime Markov-Switching process is introduced into the VAR model to examine the impact of economic policy uncertainty during different regimes of the carbon market. The empirical results show that the two-regime Markov-Switching model applies well in modelling the return series from Hubei carbon market during April 2014 to December 2017. Under the two different regimes, although the impacts from economic policy uncertainty are both significantly positive, the magnitude of the impacts differs. The impact of Chinese economic policy uncertainty on Hubei carbon price is larger during the low volatility period on carbon market than that during the high volatility period on carbon market.

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“…Recently, there have been many studies to obtain the strategy for sustainable and effective portfolio selection with various approaches [20][21][22][23]. In this paper, a well-established benchmark (e.g., Dow 30 index), which offers sustainable and stable risk-return profiles with low costs, is used to propose an effective strategy for constructing a portfolio.…”

Section: Literature Reviewsmentioning

confidence: 99%

Dantzig Type Optimization Method with Applications to Portfolio Selection

Park

Lee

et al. 2019

Sustainability

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This paper investigates a novel optimization problem motivated by sparse, sustainable and stable portfolio selection. The existing benchmark portfolio via the Dantzig type optimization is used to construct a sparse, sustainable and stable portfolio. Based on the formulations, this paper proposes two portfolio selection methods, west and north portfolio selection, and investigates their empirical properties. Numerical results presented for 12 datasets and various simulated data show that the west selection can reduce risk, and the north selection may outperform the benchmark as to risk-adjusted returns (based on, e.g., information ratio and Sharpe ratio).

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The Diversification Benefits of Including Carbon Assets in Financial Portfolios

Cited by 23 publications

References 47 publications

The Linkages of Carbon Spot-Futures: Evidence from EU-ETS in the Third Phase

The Linkages of Carbon Spot-Futures: Evidence from EU-ETS in the Third Phase

Impact of Economic Policy Uncertainty on Chinese Carbon Price

Dantzig Type Optimization Method with Applications to Portfolio Selection

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