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Factor Structure of Green, Grey, and Red EU Securities

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  • Ferdinantos Kottas

    (School of Business, National University of Ireland Maynooth, W23 F2H6 Maynooth, Ireland
    Financial Mathematics & Computational Research Cluster, A94 XF34 Dublin, Ireland
    Department of Computer Science, Aristotle University of Thessaloniki, 54124 Thessaloniki, Greece)

Abstract

This study examined the factor structure of Green, Grey, and Red EU securities using extended asset pricing models built on the Fama–French and Carhart frameworks. The findings show improved return predictability and consistently negative risk-adjusted alpha across categories post-Global Financial Crisis (GFC), suggesting systematic overestimation of expected returns. All environmental asset types are positively linked to the MKTRF, SMB, HML, and HML Devil factors, indicating exposure to core risk premia. Green securities exhibit elevated currency risk and persistent negative momentum, while Red assets transition from positive to negative momentum. Green and Red securities show stronger gold associations post-GFC, signaling a hedging role. Grey assets shift away from safe-haven behavior, becoming more sensitive to volatility. FEAR factor exposure and QML results suggest evolving sensitivity and declining quality, particularly in Grey assets. These findings underscore the need for enriched asset pricing models to capture dynamic risk characteristics in environmental assets within the EU financial markets.

Suggested Citation

  • Ferdinantos Kottas, 2025. "Factor Structure of Green, Grey, and Red EU Securities," Risks, MDPI, vol. 13(9), pages 1-25, September.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:9:p:176-:d:1747299
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    References listed on IDEAS

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