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Interconnectedness and portfolio optimisation across global ESG stocks

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Listed:
  • Ishwar Sharma
  • Bhawana Verma
  • Chanchal Saini
  • Bharti Verma

Abstract

This study investigates the connections between global ESG stocks using the TVP VAR extended joint connectedness technique. It employs multivariate portfolio construction methods to determine optimal portfolio weights and evaluates these portfolios using the Sharpe ratio. Analysing daily data from November 2014 to November 2024 shows that interconnectedness surged during key events such as the Paris Agreement, the COVID-19 pandemic, and the Russia-Ukraine war, with the highest peak during the COVID period. The study suggests that diversifying investments exclusively across emerging markets and a combination of developed and emerging markets may offer greater diversification opportunities than investing only in developed markets. To achieve a significant reduction in volatility and an increase in cumulative returns, it is recommended to allocate a substantial portion in the UK for a composite developed and emerging market portfolio, in India for an emerging market portfolio, and in Japan for a developed market portfolio.

Suggested Citation

  • Ishwar Sharma & Bhawana Verma & Chanchal Saini & Bharti Verma, 2026. "Interconnectedness and portfolio optimisation across global ESG stocks," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 18(2), pages 156-178.
    • Handle: RePEc:ids:ijsuse:v:18:y:2026:i:2:p:156-178
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