The Clean Techs equity indexes at stake: Risk and return dynamics analysis

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Abstract The goal of this paper is to measure the financial performance of 21 primary Clean Techs (CT) equity indexes, covering the primary energy markets worldwide. We use a modified state-space market model to recursively estimate the risk/return performance of each index, and two market benchmarks are considered, thus providing a more accurate picture of the financial outcomes of investing in these relatively new financial instruments. The main findings indicate that during periods of market stability, Clean Techs indexes outperform market portfolio in terms of returns. This superior performance is a consequence of the higher risk levels associated with Clean Techs indexes. This research also supports that CT indexes with a restricted investment universe underperform the market portfolio in terms of returns. Moreover, we find a structural change in the dynamics of the Clean Techs indexes' return/risk performance that coincides with the beginning of the financial crisis. Although the CT indexes are highly volatile financial instruments, even in bull market periods, they turn even riskier during the recent financial crisis. In addition, the CT provider portfolio allocation policy and the activities covered by these indexes influenced the risk/return performance of a limited number of CT equity indexes.