Quantifying the asymmetric spillovers in sustainable investments

Najaf Iqbal, Muhammad Abubakr Naeem, Muhammed Tahir Suleman

Research output: Contribution to journalArticlepeer-review

75 Citations (Scopus)


Owing to the growing importance of socially responsible investments in the wake of climate change mitigation goals, we estimate the asymmetric time- and frequency-spillovers between global sustainable investments. Additionally, we examine the influence of global risk factors such as US and UK economic policy uncertainties, stock market volatility, US treasury market volatility and infectious diseases related market volatility on the short- and long-run connectedness in these investments. To this end, we use daily returns and volatilities of 14 country-level Dow Jones Sustainability Indices from January 2005 to March 2021. By employing the asymmetric versions of Diebold & Yilmaz (2012, 2014) and Barunik & Krehlik (2018) time–frequency connectedness, our study addresses both good and bad contagion among sustainable investments that is unexplored in the recent literature. The results reveal significant time–frequency asymmetries in return spillovers across different regions in the short- and long-run. Germany, France, Netherlands, and the UK are the primary shock transmitters. We find more intra-regional connectedness among the Asian countries as opposed to inter-regional connectedness. Negative returns propagate more intensely than positive ones, and this contagion is considerably boosted during crises, including the COVID19. The VIX and COVID19 remain influential in the long run. The impact of MOVE is positive in the short-run while negative in the long-run, which shows an overreaction of connectedness to the US treasury market volatility in the short-run. Economic policy uncertainties in the US and the UK increase spillovers more intensely in the short-run. These results are robust to using volatility spillovers, the choice of rolling window and various forecast horizons. Our findings are distinctly important for socially responsible investors as we point out international portfolio diversification opportunities among sustainable investments. Understanding the dynamics of connectedness in sustainable investments can potentially boost financing in this market through portfolio choices and contribute to the climate change mitigation agenda of the United Nations.

Original languageEnglish
Article number101480
JournalJournal of International Financial Markets, Institutions and Money
Publication statusPublished - Mar 2022
Externally publishedYes


  • Asymmetric time–frequency connectedness
  • Global risk factors
  • Green finance
  • Socially responsible investments
  • Sustainable indices

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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