From wars to waves: geopolitical risks and environmental investment behaviour

This study investigates the impact of geopolitical risk (GPR) on sustainable investments, focusing on five global environmental indices and two global GPR indices. Using Corrected Dynamic Conditional Correlation Generalised Autoregressive Conditional Heteroskedasticity (cDCC-GARCH) model and Diebold...

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Bibliographic Details
Published in:Post-communist economies 2024-07, Vol.36 (5), p.631-658
Main Authors: Gabriel, Vitor, Dionísio, Andreia, Almeida, Dora, Ferreira, Paulo
Format: Article
Language:English
Subjects:
COVID-19
Crises
Diversification
Environmental equities
extreme events
Geopolitics
global political risk
Indexes
Investments
Markets
National debt
Pandemics
Public debt
spillovers
sustainable investment
Volatility
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Summary:This study investigates the impact of geopolitical risk (GPR) on sustainable investments, focusing on five global environmental indices and two global GPR indices. Using Corrected Dynamic Conditional Correlation Generalised Autoregressive Conditional Heteroskedasticity (cDCC-GARCH) model and Diebold and Yilmaz's spillover analysis, we use daily data from January 2009 to October 2022, covering various market phases, including the European sovereign debt crisis, the COVID-19 pandemic, and the war in Ukraine. Results from the cDCC-GARCH model reveal high dynamic conditional correlations. During periods of high volatility, environmental indices displayed simultaneous and more intense responses, limiting investment diversification alternatives when considering only the environmental side. Diebold and Yilmaz's static analysis demonstrates that environmental segments are more influenced by systemic shocks than specific causes, with GPR's influence proving relatively weak. In the dynamic analysis, the spillover effects of GPR in environmental segments intensified during the pandemic crisis and the invasion of Ukraine, affecting market conditions.
ISSN:1463-1377
1465-3958
DOI:10.1080/14631377.2024.2323763