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

Nikolaos Antonakakis, Vassilios Babalos, Clement Kyei

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    Abstract

    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.
    Original languageEnglish
    Pages (from-to)4655-4665
    Number of pages21
    JournalApplied Economics
    Volume48
    Issue number48
    Early online date23 Mar 2016
    DOIs
    Publication statusPublished - Sept 2016

    Keywords

    • sustainable investments
    • predictability
    • economic policy uncertainty
    • non parametric quantile causality

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