Article

Measuring risk in environmental finance

University of Western Australia, Perth City, Western Australia, Australia
Journal of Economic Surveys (Impact Factor: 1.33). 12/2007; 21(5):970-998. DOI: 10.1111/j.1467-6419.2007.00526.x
Source: RePEc

ABSTRACT

Environmental sustainability indices, such as the Dow Jones Sustainability Indexes and the Ethibel Sustainability Index, quantify the development and promotion of sustainable social, ethical and environmental values in the community. Moreover, such indices provide a benchmark for managing sustainability portfolios, and developing financial products and services that are linked to sustainable economic, environmental, social and ethical criteria. This paper reviews the existing data and risk indices in environmental finance. The main purpose of the paper is to analyse existing sustainability and ethical indices in environmental finance, and evaluate empirical environmental risk by estimating conditional volatility clustering that is inherent in these indices. Financial volatility models are estimated to analyse the underlying conditional volatility or time-varying risk that is inherent in alternative environmental sustainability indices. Volatility clustering is observed for most series, but some extreme observations are also evident. The log- and second-moment conditions suggest that valid inferences can be drawn for purposes of sensible empirical analysis. Copyright 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Ltd.

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    • "Hoti et al. (2008) used the Vector ARMA‐GARCH model found that the DJSI index and the Ethibel sustainability index gave rise to spillover effect, while the only spillover effect from the Dow Jones Industrial Average to the DJSI returns was found. Hoti et al. (2007) found that five sustainability and ethical index exhibited co‐national volatility clustering and asymmetric volatility effects by using GARCH models. Obernadorfer et al. (2013) used the event study and t‐GARCH(1.1) "

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    • "In Brazil, the same study indicated that investors would pay 24% more for stocks of companies with such profile (Cavalcante et al., 2007). One explanation for such growth has been presented by Hoti et al. (2007): despite having average returns similar to those of conventional funds, the sustainability indexes are less volatile and more secure for investors during periods of economic turbulence. Nonetheless, as Capelle-Blancard and Monjon (2012) pointed out, these elements alone do not explain the exponential growth and popularity of SRI in the past decade. "
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