Is Infrastructure Really Low Risk? An Empirical Analysis of Listed Infrastructure Firms

Even though infrastructure investments have gained increasing investor attention over the past decade, the empirical evidence on their risk characteristics is still limited. To fill this gap, we analyze the risk properties of a unique cross-sectional sample of more than 1,400 publicly listed firms worldwide across all infrastructure sectors. We find that infrastructure stocks on average exhibit significantly lower market risk than MSCI World equities, confirming their portfolio diversification benefits. Yet, as there are large variations within the infrastructure asset class, the low risk hypothesis cannot be maintained for all sectors. In contrast to the widespread belief that total corporate risk is lower for infrastructure firms, we show that across all sectors they exhibit a similar volatility as non-infrastructure firms. Hence, infrastructure is characterized by significant exposure to idiosyncratic risks despite the lower competition in infrastructure industries. This peculiar risk profile can be partly explained by construction risks, operating leverage, the exposure to regulatory changes, and the lack of product diversification. This finding highlights the need for diversified infrastructure portfolios, advanced risk management capabilities, and efficient risk sharing mechanisms between private and public sector