Is there a cost for sustainable investments: evidence from dynamic conditional correlation

Abstract

Sustainable investment avenues provide an additional return (than just financial return) in terms of contribution towards sustainability and sustainable indexes. We examine if the investors who put their money in sustainable avenues need to forego a part of their financial return. For that purpose, we compare the conditional correlation and volatility behavior of sustainable indexes and typical indexes by applying the Dynamic Conditional Correlation – GARCH model. The study is based on secondary data of Morgan Stanley Capital International (MSCI) (for conventional indexes) and Thomson Reuters indexes (as a proxy for sustainability-based indexes) using the daily closing values for a period of 5 years from January 2013 to December 2017. By concluding that the investors may switch to sustainable investment avenues without compromising on the front of return or risk, this study offers critical insight to the potential investors across developed and developing markets.