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Green investments: A luxury good or a financial necessity?

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  • Yousaf, Imran
  • Suleman, Muhammad Tahir
  • Demirer, Riza

Abstract

This study examines the diversification and hedging benefits of green investments for conventional stock portfolios in the context of the recent COVID-19 pandemic. While the findings confirm the status of gold as a strong hedge against stock market downturns, we find that clean energy investments, green bonds, in particular, have the potential to serve as a safe haven as well. In fact, compared to the other alternative and sustainable investments in our sample, green bonds are found to be the only asset that serves as a safe haven against large stock market fluctuations due to the COVID-19 pandemic. Portfolio analysis further shows that supplementing conventional stock portfolios with green bonds during the COVID-19 pandemic resulted in the highest risk-adjusted returns, compared to those supplemented with other alternative assets in the sample. Our findings support the emergence of green investments not as a luxury good, but a necessity for improved financial stability and performance, particularly during the turbulent market states driven by the recent pandemic.

Suggested Citation

  • Yousaf, Imran & Suleman, Muhammad Tahir & Demirer, Riza, 2022. "Green investments: A luxury good or a financial necessity?," Energy Economics, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:eneeco:v:105:y:2022:i:c:s0140988321005909
    DOI: 10.1016/j.eneco.2021.105745
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    More about this item

    Keywords

    Green bonds; Clean energy stocks; Islamic markets; Safe havens; COVID-19 crisis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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