Green Investing: Impact of Pro-environmental Preferences on Stock Market Valuations During Turbulent Periods

Abstract

The study addresses the growing popularity and need of green investing. Green investing have been shown to churn lesser yields and underperform general market portfolios. Rapid growth of green bonds, green funds and green theme indices worldwide indicate towards the growing segment within investment community. The ethical screens lead to crunching of investable universe as a result such funds are expected to lose on diversification benefits. The study attempts to investigate the performance of green and non-green portfolios during the crisis and validate the differential impact of crisis on their demand. It further examines the impact of market cycles on the returns of portfolios. The period is classified into pre-crisis, crisis and post-crisis period. Asset pricing models believed to explain the returns on well diversified market portfolio have been applied on constructed green and non-green portfolios to measure the abnormal return. Green portfolios are noticed to be picking pace and outperforming market after the crisis surpassed. Indian investors are not penalizing companies for their green initiatives and such initiatives are believed to drive demand for the stock.