Green Assets and Global Portfolio Tail Risk? A Stress-Testing exercise under multiple asset classes under distinct market phases

Abstract

Despite a burgeoning literature in the sphere of cryptocurrencies and green assets, yet, as of date, the literature fares poorly in terms of a holistic assessment of all asset classes, let alone stress testing such global portfolio risk under various market conditions. Our paper fulfills such a gap in the literature. Findings reveal that, irrespective of bearish or bullish market phases, green assets should be incorporated to mute down portfolio tail risk. Robustness tests performed either via different distribution type or CVaR analysis do not materially alter the main findings of our paper. The confluence of two forces substantially boosts tail risk, namely, passive investment strategy coupled with a crypto-augmented base model. Overall, our paper advocates the inclusion of green assets not as a choice but as an obligation to portfolio managers in view of curtailing both VaR and CVaR risk levels, all geared towards hitting two birds with one stone-simultaneously buttressing a greener world while effectively mitigating global portfolio tail risk.