We examined the dynamic volatility connectedness and diversification strategies among US real estate investment trusts (REITs) and green finance indices.
The DCC-GARCH dynamic connectedness framework and he DCC-GARCH t-copula model were employed in this study.
Using daily data from 2,206 observations spanning from 2 January 2015 to 31 January 2023 this paper presents the following findings: (1) cross-market spillovers exhibited a high correlation and significant fluctuations, particularly during extreme events; (2) our analysis confirmed that REIT acted as net receivers from other green indices, with the S&P North America Large-MidCap Carbon Efficient Index dominating the in-network volatility spillover; (3) this observation suggests asymmetric spillovers between the two markets and (4) a portfolio analysis was conducted using the DCC-GARCH t-copula framework to estimate hedging ratios and portfolio weights for these indices. When REIT and the Dow Jones US Select ESG REIT Index were simultaneously added to a risk-hedged portfolio, our findings indicated that no risk-hedging effect could be achieved. Moreover, the cost and performance of hedging green assets using REIT were found to be comparable.
We first examined the dynamic volatility connectedness and diversification strategies among US REITs and green finance indices. The outcomes of this study carry practical implications for market participants.
