Study Findings on Risk Management Reported by Researchers at Nicolaus Copernicus University in Torun (Volatility Modeling and Dependence Structure of ESG and Conventional Investments): Insurance – Risk Management

Insurance Daily News

2022 FEB 03 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Investigators publish new report on insurance. According to news originating from Torun, Poland, by NewsRx editors, the research stated, “The question of whether environmental, social, and governance investments outperform or underperform other conventional financial investments has been debated in the literature. In this study, we compare the volatility of rates of return of selected ESG indices and conventional ones and investigate dependence between them.”

Our news journalists obtained a quote from the research from Nicolaus Copernicus University in Torun: “Analysis of tail dependence is important to evaluate the diversification benefits between conventional investments and ESG investments, which is necessary in constructing optimal portfolios. It allows investors to diversify the risk of the portfolio and positively impact the environment by investing in environmentally friendly companies. Examples of institutions that are paying attention to ESG issues are banks, which are increasingly including products that support sustainability goals in their offers. This analysis could be also important for policymakers. The European Banking Authority (EBA) has admitted that ESG factors can contribute to risk. Therefore, it is important to model and quantify it. The conditional volatility models from the GARCH family and tail-dependence coefficients from the copula-based approach are applied. The analysis period covered 2007 until 2019. The period of the COVID-19 pandemic has not been analyzed due to the relatively short time series regarding data requirements from models’ perspective.”

According to the news reporters, the research concluded: “Results of the research confirm the higher dependence of extreme values in the crisis period (e.g., tail-dependence values in 2009-2014 range from 0.4820/0.4933 to 0.7039/0.6083, and from 0.5002/0.5369 to 0.7296/0.6623), and low dependence of extreme values in stabilization periods (e.g., tail-dependence values in 2017-2019 range from 0.1650 until 0.6283/0.4832, and from 0.1357 until 0.6586/0.5002). Diversification benefits vary in time, and there is a need to separately analyze crisis and stabilization periods.”

For more information on this research see: Volatility Modeling and Dependence Structure of ESG and Conventional Investments. Risks, 2022,10(20):20. (Risks - http://www.mdpi.com/journal/risks). The publisher for Risks is MDPI AG.

A free version of this journal article is available at https://doi.org/10.3390/risks10010020.

Our news editors report that additional information may be obtained by contacting Joanna Gorka, Department of Econometrics and Statistics, Nicolaus Copernicus University in Torun, 87-100 Torun, Poland. Additional authors for this research include Katarzyna Kuziak.