ESG Investing through ETFs - An effective way to circumvent volatility?

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: This study highlights relatively new investment phenomena such as ETF investing and forthcoming trends in placement strategies to incorporate long-term visions and sustainable holdings. ETFs are popular for several reasons, but the investment vehicle also has some embodied volatility, in contrast to more traditional securities, making them less desirable for the risk-averse investor. This thesis's central purpose is to examine how to circumvent some of this embedded volatility through sustainable investment strategies in ETFs. The definition of sustainable and green investments is made based on MSCIs ESG-rating. The purpose of the problem question is to make rational investing in ETFs more applicable for the private investor. The study's result is consistent with the claim that green and sustainable investments are the future of finance. The quantitative analysis made through the DCC-GARCH model indicated a significant difference in daily volatility between green and non-green ETFs. The analysis is based on five years of daily return data compared between 80 ETFs listed in the US.

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