Comparative Efficiency of Green Assets and Black Assets Around the Russo-Ukraine War

Our study examines the hedging ability and safe-haven properties of green/clean assets compared to two major safe-haven instruments around the war in Ukraine. The results show substantial variations in average multivariate portfolio weights and hedging effectiveness under different techniques and during Russo-Ukrainian war. Green bonds provide a negligible and negative contribution to volatility reduction despite their high portfolio weights. WTI and clean energy markets appear to be the most attractive investments with below-average portfolio weights and make significant contributions to reducing overall volatility. The increased uncertainty in financial markets driven by the war has negatively influenced the return performance of multivariate portfolios. During the war period, green bonds had the highest asset allocations for the bivariate portfolios, followed by gold, and significantly but slightly reduced portfolio risk. We find that hedging rates and effectiveness rise for the majority of assets during the war, implying that, with a few exceptions, hedging costs rise during the crisis and the cost of a hedge becomes cheap for green bonds and costly for gold. Green bonds exhibit the worst performance under all strategies in both periods, whereas green commodity index, followed by WTI, has the best reward-to-volatility ratio under the RPP model prior to the conflict period. Throughout the study period, both negative and positive scale and event-dependent co-movements between all financial asset return combinations emerge. The commencement of the conflict in February 2022, along with Ukraine’s counterattacks beginning in August 2023, has a significant influence on the direction of co-movements. Our findings shed light on the portfolio implications and risk management.