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Risk Mitigation and Return Resilience for High Yield Bond ETFs with ESG Components

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  • Kanamura, Takashi

Abstract

The objective of this study is to investigate the effects of ESG components on financial products by using high yield bond exchange traded funds (ETFs). For the objective, we propose a new price correlation and volatility model between an existing financial market such as conventional high yield bond ETFs and a new financial market such as ESG high yield bond ETFs, in which the former affects the latter. Empirical studies show that ESG factors have hedging effects to the downside risk of conventional high yield bond ETF prices in the Covid-19 shocks of March, 2020 from the positive impacts of conventional high yield bond ETF prices on the correlations with ESG ones by using ESG high yield corporate bond ETFs of the Nuveen and the iShares compared with a conventional high yield bond ETF of the SPDR Bloomberg Barclays. Additionally, high yield bond ETFs that take ESG into account are observed to reduce risk compared to a conventional high yield bond ETF. Results also show that ESG high yield bond ETF returns are higher than conventional high yield bond ETF returns in the Covid-19 shocks. The implication from these results is that the value of ESG investing lies in the mitigation of risks and the resilience of expected returns.

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  • Kanamura, Takashi, 2021. "Risk Mitigation and Return Resilience for High Yield Bond ETFs with ESG Components," Finance Research Letters, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316809
    DOI: 10.1016/j.frl.2020.101866
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    Cited by:

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    2. Lashkaripour, Mohammadhossein, 2023. "ESG tail risk: The Covid-19 market crash analysis," Finance Research Letters, Elsevier, vol. 53(C).
    3. Xia Wu & Danlu Bu & Jun Lian & Yanping Bao, 2022. "Green Bond Issuance and Peer Firms’ Green Innovation," Sustainability, MDPI, vol. 14(24), pages 1-24, December.
    4. Daniela Nicoleta Sahlian & Adriana Florina Popa & Ștefania Amalia Nicoară & Corina Graziella Bâtcă-Dumitru, 2023. "Examining the Causality between Integrated Reporting and Stock Market Capitalization. The Case of the European Renewable Energy Equipment and Services Industry," Energies, MDPI, vol. 16(3), pages 1-12, January.
    5. Davide Lauria & W. Brent Lindquist & Stefan Mittnik & Svetlozar T. Rachev, 2022. "ESG-Valued Portfolio Optimization and Dynamic Asset Pricing," Papers 2206.02854, arXiv.org.
    6. Xu, Guoquan & Lu, Nuotian & Tong, Yan, 2022. "Greenwashing and credit spread: Evidence from the Chinese green bond market," Finance Research Letters, Elsevier, vol. 48(C).
    7. Riccardo Savio & Edoardo D’Andrassi & Francesca Ventimiglia, 2023. "A Systematic Literature Review on ESG during the COVID-19 Pandemic," Sustainability, MDPI, vol. 15(3), pages 1-17, January.
    8. Rehman, Mobeen Ur & Raheem, Ibrahim D. & Zeitun, Rami & Vo, Xuan Vinh & Ahmad, Nasir, 2023. "Do oil shocks affect the green bond market?," Energy Economics, Elsevier, vol. 117(C).

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    More about this item

    Keywords

    ESG; high yield bond ETF; risk mitigation; resilient return; Covid-19;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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