Abstract
This empirical study investigates the potential of carbon markets in reducing the downside risk of NFT portfolios. Employing a monthly rebalance experiment and considering higher order conditional moments, we dynamically measure the tail risk of NFT portfolios over an out-of-sample period. Our results show that introducing CO2 emission allowance (EUA) futures in NFT portfolios allows for a systematic mitigation of risk via reduction of volatility and kurtosis and steepening of skewness. Empirical evidence also reveals the outperformance of NFT portfolios that include EUA futures.
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