Evaluating cleantech as a financial investment

Abstract

This study evaluates cleantech as a financial investment through its interaction with the stock market from global and local perspectives. Global financial assets include the S&P Kensho Cleantech Index (KSCT) and the S&P GLOBAL 1200 (SPG). Local financial assets include the S&P/TSX Renewable Energy and Clean Technology Index (RECT) and the S&P/TSX Composite Index (TSX). We employ the bivariate dynamic conditional correlation generalized autoregressive conditional heteroskedasticity framework to investigate the nexus between the daily performance of cleantech stocks and corresponding markets from 01 August 2013 to 02 August 2023. Empirical results indicate that the past return of KSCT positively influences the SPG performance and that there is no significant evidence of the corresponding impact of RECT on TSX. The dynamic correlation between cleantech and the market is positive under both global and local assessments. Portfolio assessments reveal that we shall not add KSCT to the SPG investment while the humble participation of RECT drives its hedging effectiveness with TSX negatively. The findings clarify the financial advantages of cleantech stocks thanks to their positive impact on the global market. Besides, challenges of cleantech stocks may come from their performance as combined with the market. In relation, the findings suggest relevant parties leave cleantech firms play their innovation role in pursuit of sustainability.