Predictability of sustainable investments and the role of uncertainty: evidence from a non- parametric causality-in-quantiles test

In this paper we examine sustainable investments returns predictability based on the US Dow Jones Sustainability Index (DJSI) and a wide set of uncertainty and financial distress indicators for the period January 2002 to December 2014. To this end, we employ a novel nonparametric causality-in-quantile approach that captures non-linearities in returns distribution. Based on our findings we conclude that the aggregate Economic Policy Uncertainty (EPU) indicator and some components have predictive ability for real returns of the US sustainable investments index. Moreover, if we split our sample to before and after the global financial crisis our results suggest that predictors carry causal information for real returns only in the after crisis period. Finally, some marginal evidence of predictability from Sovereign Debt is also observed at the lower and upper-ends of the conditional distribution of the real returns of sustainable investments. Our results might entail policy implications for investors and market authorities.