Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis
Amidst the global push for decarbonization, green hydrogen has gained recognition as a versatile and clean energy carrier, prompting the financial sector to introduce specialized investment instruments like Green Hydrogen Exchange-Traded Funds (ETFs). Despite the nascent nature of research on green...
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-12-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/11/12/212 |
| _version_ | 1797379426417115136 |
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| author | Cristiana Tudor |
| author_facet | Cristiana Tudor |
| author_sort | Cristiana Tudor |
| collection | DOAJ |
| description | Amidst the global push for decarbonization, green hydrogen has gained recognition as a versatile and clean energy carrier, prompting the financial sector to introduce specialized investment instruments like Green Hydrogen Exchange-Traded Funds (ETFs). Despite the nascent nature of research on green hydrogen portfolio performance, this study examines two key green hydrogen ETFs (i.e., HJEN and HDRO) from April 2021–May 2023, aiming at conducting a multifaceted exploration of their performance, isolating and measuring their sensitivity to the primary market factor, and assessing the capabilities of systematic trading strategies to preserve capital and minimize losses during market downturns. The results spotlight lower returns and higher risks in green hydrogen investments compared to conventional equity (proxied by ETFs offering exposure to developed markets—EFA and emerging markets—EEM) and green energy portfolios (proxied by the ETF ICLN). To comprehensively evaluate performance, an array of risk-adjusted metrics, including Std Sharpe, ES Sharpe, VaR Sharpe, Information ratio, Sortino ratio, Treynor ratio, and various downside risk metrics (historical VaR, modified VaR, Expected Shortfall, loss deviation, downside deviation, and maximum drawdown) are employed, offering a nuanced understanding of the investment landscape. Moreover, single-factor models highlight significant systematic market risk, reflected in notably high beta coefficients, negative alphas, and active premia, underscoring the sensitivity of green hydrogen investments to market fluctuations. Despite these challenges, a silver lining emerges as the study demonstrates the efficacy of implementing straightforward Dual Moving Average Crossover (DMAC) trading strategies. These strategies significantly enhance the risk-return profile of green hydrogen portfolios, offering investors a pathway to align financial and social objectives within their equity portfolios. This research is motivated by the need to provide market players, policymakers, and stakeholders with valuable insights into the benefits and risks associated with green hydrogen investment, considering its potential to reshape the global energy landscape. |
| first_indexed | 2024-03-08T20:24:09Z |
| format | Article |
| id | doaj.art-7160b88dc7f2433494a049838f4c2ab9 |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-08T20:24:09Z |
| publishDate | 2023-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-7160b88dc7f2433494a049838f4c2ab92023-12-22T14:39:32ZengMDPI AGRisks2227-90912023-12-01111221210.3390/risks11120212Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return AnalysisCristiana Tudor0International Business and Economics Department, The Bucharest University of Economic Studies, 010374 Bucharest, RomaniaAmidst the global push for decarbonization, green hydrogen has gained recognition as a versatile and clean energy carrier, prompting the financial sector to introduce specialized investment instruments like Green Hydrogen Exchange-Traded Funds (ETFs). Despite the nascent nature of research on green hydrogen portfolio performance, this study examines two key green hydrogen ETFs (i.e., HJEN and HDRO) from April 2021–May 2023, aiming at conducting a multifaceted exploration of their performance, isolating and measuring their sensitivity to the primary market factor, and assessing the capabilities of systematic trading strategies to preserve capital and minimize losses during market downturns. The results spotlight lower returns and higher risks in green hydrogen investments compared to conventional equity (proxied by ETFs offering exposure to developed markets—EFA and emerging markets—EEM) and green energy portfolios (proxied by the ETF ICLN). To comprehensively evaluate performance, an array of risk-adjusted metrics, including Std Sharpe, ES Sharpe, VaR Sharpe, Information ratio, Sortino ratio, Treynor ratio, and various downside risk metrics (historical VaR, modified VaR, Expected Shortfall, loss deviation, downside deviation, and maximum drawdown) are employed, offering a nuanced understanding of the investment landscape. Moreover, single-factor models highlight significant systematic market risk, reflected in notably high beta coefficients, negative alphas, and active premia, underscoring the sensitivity of green hydrogen investments to market fluctuations. Despite these challenges, a silver lining emerges as the study demonstrates the efficacy of implementing straightforward Dual Moving Average Crossover (DMAC) trading strategies. These strategies significantly enhance the risk-return profile of green hydrogen portfolios, offering investors a pathway to align financial and social objectives within their equity portfolios. This research is motivated by the need to provide market players, policymakers, and stakeholders with valuable insights into the benefits and risks associated with green hydrogen investment, considering its potential to reshape the global energy landscape.https://www.mdpi.com/2227-9091/11/12/212green hydrogen equitydownside riskmarket riskrisk-adjusted returnsfactor modelsDMAC |
| spellingShingle | Cristiana Tudor Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis Risks green hydrogen equity downside risk market risk risk-adjusted returns factor models DMAC |
| title | Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis |
| title_full | Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis |
| title_fullStr | Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis |
| title_full_unstemmed | Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis |
| title_short | Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis |
| title_sort | enhancing sustainable finance through green hydrogen equity investments a multifaceted risk return analysis |
| topic | green hydrogen equity downside risk market risk risk-adjusted returns factor models DMAC |
| url | https://www.mdpi.com/2227-9091/11/12/212 |
| work_keys_str_mv | AT cristianatudor enhancingsustainablefinancethroughgreenhydrogenequityinvestmentsamultifacetedriskreturnanalysis |