IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v30y2025i3p3119-3137.html
   My bibliography  Save this article

ESG Meets DeFi: Exploring Time‐Varying Linkages and Portfolio Implications

Author

Listed:
  • Shoaib Ali
  • Manel Youssef
  • Muhammad Umar
  • Muhammad Abubakr Naeem

Abstract

This study delves into the connection between Environmental, Social and Governance (ESG) indices and emerging Decentralised Finance (DeFi) assets. Specifically, it explores the ever‐changing, frequency‐based linkage between these ESG indices and innovative DeFi assets. Employing the wavelet coherence technique, we analyse a broad range of ESG indices, spanning emerging, developed and US indices, alongside various DeFi assets. This examination covers a period encompassing the COVID‐19 pandemic and the Russian‐Ukrainian conflict to assess market linkages during extreme events. We then calculate optimal weights and hedge ratios for ESG‐DeFi asset pairs to evaluate portfolio implications. Wavelet analysis results frequently show no connection between ESG indices and DeFi assets, underscoring the diversification benefits of adding DeFi to an ESG portfolio. However, this relationship notably strengthens at the pandemic crisis's onset, indicating DeFi assets lose diversification potential during turbulent times. Portfolio allocation should mainly favour ESG indices during normal periods, with minimal variations in optimal weights pre‐ and post‐COVID. Meanwhile, hedge ratio analysis suggests DeFi assets make sound investments during crises, although hedging costs increase during turbulent periods. These findings hold relevance for investors, portfolio managers and policymakers.

Suggested Citation

  • Shoaib Ali & Manel Youssef & Muhammad Umar & Muhammad Abubakr Naeem, 2025. "ESG Meets DeFi: Exploring Time‐Varying Linkages and Portfolio Implications," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 3119-3137, July.
    • Handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:3119-3137
    DOI: 10.1002/ijfe.3060
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.3060
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.3060?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:3119-3137. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.