Portfolio hedging through a novel equity index based on the verified emissions of EU ETS-regulated firms
构建了一个基于欧盟排放交易体系管制上市公司的股票指数，其权重反映企业基于核实排放量的环境绩效，研究发现该指数在多个资产类别中提供稳健的对冲效果，尤其在政策更严格的第三和第四阶段，能提升投资组合的风险调整后收益。
We build an equity index based on EU ETS-regulated listed firms. The weights of our index reflect the cross-sectional heterogeneity in the firms’ environmental performances measured in terms of verified rather than estimated or self-reported emissions. By using a DCC-GARCH model, we estimate optimal weights and assess the hedge effectiveness of the EU ETS index across multiple asset classes. The index provides robust hedging benefits, particularly during Phases III and IV of the EU ETS, aligning with stricter environmental policies. Portfolio optimization techniques show that incorporating the EU ETS index enhances risk-adjusted performance. Our findings offer actionable insights for investors seeking to minimize financial risks. • We develop an equity index based on EU ETS-regulated listed firms. • Its weights reflect firms’ environmental performances. • Environmental performances are based on firms’ verified emissions scaled by size. • Our index provides robust hedge effectiveness against various asset classes. • Including the EU ETS index in portfolios tends to enhance risk-adjusted performances.