The behavior of green exchange-traded funds
Purpose - The purpose of this paper is to investigate green exchange-traded funds (ETFs) and propose a market-wide proxy for green returns and a green volatility factor. Design/methodology/approach - Identifying a unique sample of green funds, this paper investigates the time-series behavior of returns for these investment vehicles and their associated conditional volatility dynamics via GARCH methodology. In this study, green ETFs are defined as index funds replicating market indices that invest in stocks exhibiting positive environmental, social, and governance characteristics. Findings - Cumulative market-wide green returns are found to be positive from inception year 2005 through 2008. Estimating a t-GARCH (1,1) specification, the author finds strong evidence in favor of volatility persistence for the 15 green ETFs identified in this study. Additionally, the results suggest that a 1 percent volatility-based value-at-risk forecast ranges from $24,150 through $26,000 on a daily basis. Finally, the empirical evidence provides support for weak-form market efficiency when examining the green universe of stocks. Research limitations/implications - Green ETFs are relatively recent financial instruments and exhibit important implications for volatility timing strategies and the cross-section of green stock returns. Practical implications - Knowledge of green price behavior is important in constructing optimal hedging and risk management strategies. Social implications - Green ETFs provide a natural channel for sustainable investing. Originality/value - Green ETFs exhibit the advantage of including many companies that have undertaken positive measures towards the global environment in their respective business models. This paper provides the first investigation of green ETFs.
Volume (Year): 37 (2011)
Issue (Month): 5 (April)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=mf Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asger Lunde & Peter R. Hansen, 2005.
"A forecast comparison of volatility models: does anything beat a GARCH(1,1)?,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- Asger Lunde & Peter Reinhard Hansen, 2001. "A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?," Working Papers 2001-04, Brown University, Department of Economics.
- José-Miguel Gaspar, 2006. "Idiosyncratic Volatility and Product Market Competition," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3125-3152, November.
- Jeff Fleming, 2001. "The Economic Value of Volatility Timing," Journal of Finance, American Finance Association, vol. 56(1), pages 329-352, 02.
- Jiang, George J. & Xu, Danielle & Yao, Tong, 2009. "The Information Content of Idiosyncratic Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 1-28, February.
- Bai, Xuezheng & Russell, Jeffrey R. & Tiao, George C., 2003. "Kurtosis of GARCH and stochastic volatility models with non-normal innovations," Journal of Econometrics, Elsevier, vol. 114(2), pages 349-360, June.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," NBER Working Papers 8959, National Bureau of Economic Research, Inc.
- Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-16, Duke University, Department of Economics.
- Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Alexander, C. & Barbosa, A., 2008. "Hedging index exchange traded funds," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 326-337, February.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394-394.
- Brenner, Menachem & Pasquariello, Paolo & Subrahmanyam, Marti, 2009. "On the Volatility and Comovement of U.S. Financial Markets around Macroeconomic News Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(06), pages 1265-1289, December.
- James W. Taylor, 2008. "Estimating Value at Risk and Expected Shortfall Using Expectiles," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 6(2), pages 231-252, Spring. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eme:mfipps:v:37:y:2011:i:5:p:426-441. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.