Returns and volatility of water investments

Rajibur Reza,Bin Li,Gurudeo Anand Tularam,Dirk Baur

doi:10.1080/23322039.2018.1438724

Rajibur Reza, Bin Li + Show 2 more

Open Access

https://doi.org/10.1080/23322039.2018.1438724

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Abstract

This study analyzes the stock returns and volatility of the global water industry in different (full, pre-GFC, GFC and post-GFC) periods. The study estimates ARMA (1, 1)-GARCH (1, 1) and EGARCH (1, 1) models on the World Water index (WOWAX), S-Network Global Water Index (S-Net), S&P Global Water Index (S&P), and MSCI ACWI Water Utilities Index (MSCI ACWI), the Asia, Europe, Latin America and US water markets, Pictet Global Water Fund (Pictet), and KBC Eco Water Fund (KBC Eco) for the period 2004–2014. In this study, the EGARCH (1, 1) model results suggest the existence of persistence of volatility from four water indices, four water markets and two water funds in different periods and asymmetric volatility (leverage) for Asia and US, S-Net and Pictet in full, pre-GFC and GFC periods and for WOWAX in GFC and post-GFC periods. The WOWAX is not highly correlated with water markets and water funds, which suggests that it may provide a possible opportunity for portfolio diversification in different periods.

Highlights

Water is the most essential life-sustaining substance and the only commodity that is needed for life, agriculture, and industry over the world (Reza, Tularam, & Li, 2017; Summit Global Management, 2017; Tularam & Reza, 2016)
We find that Pictet Global Water Fund (Pictet) and KBC Eco Water Fund (KBC Eco) significantly correlates with Asia, Latin America, and US water markets during the full, pre-GFC, GFC, and post-GFC periods
autoregressive moving average (ARMA)-generalized autoregressive conditional heteroskedasticity (GARCH) (1, 1) models are developed to take into accounts both volatility and returns of the daily time series data

Summary

Introduction

Water is the most essential life-sustaining substance and the only commodity that is needed for life, agriculture, and industry over the world (Reza, Tularam, & Li, 2017; Summit Global Management, 2017; Tularam & Reza, 2016). Climate change recently has further compounded the problems of water scarcity (Tularam & Hassan, 2016; Tularam & Murali, 2015; Tularam & Properjohn, 2011). The climate change effect and population growth has led to a water deficit, which in turn has posed major challenges to many parts of developed and developing countries including Bangladesh, Pakistan, Southern India, Northern China, Central Asia, the Middle East, the Sub-Sahara Africa, Southern Spain, Midwest United States, Mexico and the Andes, which are facing chronic drinking water scarcities (Jin, Li, Roca, & Wong, 2016; Reza et al, 2017; Roca & Tularam, 2012; Roca, Tularam, & Reza, 2015; Tularam & Marchisella, 2014; Wild, Francke, Menzli, & Schon, 2010, 2007). According to the 2030 Water Resources Group (2006), global water requirements would grow from 4,500 billion m3 to 6,900 billion m3 by 2030

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