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Risk Management and Sustainability - A Study of Risk and Return in Portfolios With Different Levels of Sustainability
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematics (Div.).
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematics (Div.).
2023 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Finansiell riskhantering och hållbarhet - En studie om risk och avkastning i portföljer med olika nivåer av hållbarhet (Swedish)
Abstract [en]

This thesis examines the risk profile of Electronically Traded Funds and the dependence of the ESG rating on risk. 527 ETFs with exposure globally were analyzed. Risk measures considered were Value-at-Risk and Expected Shortfall, while some other metrics of risk was used, such as the volatility, maximum drawdown, tail dependece, and copulas. Stress tests were conducted in order to test the resilience against market downturns. The ETFs were grouped by their ESG rating as well as by their carbon intensity. The results show that the lowest risk can be found for ETFs with either the lowest ESG rating or the highest. Generally, a higher ESG rating implies a lower risk, but without statistical significance in many cases. Further, ETFs with a higher ESG rating showed, on average, a lower maximum drawdown, a higher tail dependence, and more resilience in market downturns. Regarding volatility, the average was shown to be lower on average for ETFs with a higher ESG rating, but no statistical significance could be found. Interestingly, the results show that investing sustainably returns a better financial performance at a lower risk, thus going against the Capital Asset Pricing Model.

Abstract [sv]

Denna studie undersöker riskprofilen för elektroniskt handlade fonder och sambandet mellan risk och hållbarhetsbetyg. 527 ETF:er med global exponering analyserades. De riskmått som användes var Value-at-Risk och Expected Shortfall, och några andra mått för risk användes, däribland volatilitet, största intradagsnedgång, samband i svansfördelning, och copulas. Stresstest utfördes för att testa motsåtndskraften i marknadsnedgångar. ETF:erna grupperades med hjälp av deras hållbarhetsbetyg och deras koldioxidintensitet. Resultatet visar att lägst risk finns i ETF:er med högst respektive lägst hållbarhetsbetyg. Generellt har ETF:er med högre hållbarhetsbetyg en lägre risk, med endast viss statistisk signifikans. Därtill har ETF:er med högre hållbarhetsbetyg, i genomsnitt, en lägre största intradagsnedgång, högre samband i fördelningssvansarna och är mer motståndskraftiga i marknadsnedgångar. Volatiliteten är i genomsnitt lägre desto högre hållbarhetsbetyget är, men detta resultat saknar statistisk signifikans. Ett intressant resultat är att om man investerar hållbart kan man få en högre avkastning med en lägre risk, vilket går emot Capital Asset Pricing Model.

Place, publisher, year, edition, pages
2023. , p. 94
Series
TRITA-SCI-GRU ; 2023:312
Keywords [en]
ESG, Value-at-Risk (VaR), Expected Shortfall (ES), Risk Management, Financial Risk, Financial Mathematics, Sustainability, Portfolio Management, Capital Asset Pricing Model (CAPM)
Keywords [sv]
Hållbarhet, Value-at-Risk (VaR), Expected Shortfall (ES), Riskhantering, Finansiell Risk, Finansiell Matematik, Portföljkonstruktion
National Category
Other Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-337185OAI: oai:DiVA.org:kth-337185DiVA, id: diva2:1800533
External cooperation
CB Asset Management AB
Subject / course
Financial Mathematics
Educational program
Master of Science - Applied and Computational Mathematics
Supervisors
Examiners
Available from: 2023-09-27 Created: 2023-09-27 Last updated: 2023-09-27Bibliographically approved

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