The Beneficial Role of Green Bonds as a New Strategic Asset Class Dynamic : Dependencies, Allocation and Diversification Before and During the Pandemic Era

The paper proposes a full comprehensive analysis of green bond diversification benefits, their comovementwith multiple market indices, and the corresponding implications for portfolio allocation.Based on a time-frame of seven years, divided into four sub-periods, the co-movements of green-bondindices, i.e. Solactive Green Bond Index and Bloomberg Barlcays MSCI Green Bond Index, andthe stock/bond market have been described, shedding light on the connections with sectors mostaffected by the Covid-19 pandemic. The Solactive Green Bond Index is found to provide the greaterdiversification benefit of the two green-bond indices, on average during the seven years and alsoduring the pandemic. Allocation strategies and risk performances have been also analysed to assessthe impact of green-bond indices on otherwise traditional portfolios; their diversification power isdiscussed by use of traditional measures and more behavioral approaches, drawing attention to itsevolution in time and its consistency in term of diminished risks and increased returns. Portfoliosconstructed with the inclusion of green bonds prove preferable in terms of risk, in all periods andfor all strategies, while the superiority of returns depends on the allocation strategy