Comparing Returns and Risks of Portfolio with Green Bond and Without Green Bond

Abstract

This paper aims to quantify and compare value at risk, conditional value at risk as well as the returns between stock-non green bond and stock-green bond portfolios. And find the portfolios weights allocation. Using the daily closing prices of Shanghai Composite Index, Shenzhen composite index, 21 treasury bonds (7), 16 R&F 11 corporate bond, SSE green bond index as the original data, construct three investment portfolios of stocks and different bond portfolios. The study employs the DCC-GARCH and uses the Monte Carlo simulation technique to generate the simulated data to calculate Value at Risk (VaR), Conditional Value at Risk (CVaR) and Sharpe ratio of the three portfolios. Our result show that the risk of portfolio 3 is the lowest, and that of portfolio 2 is the highest, which shows that adding green bonds to portfolio can reduce the risk of portfolio more effectively than treasury bonds and corporate bonds. And through the calculation of the Sharpe ratio, we know that portfolio 3 has better performance. For each additional unit of risk, the portfolio will gain an excess return of 0.25%. The portfolio 3 allocation is 0.11% of SSE, 0.19% of SZSE, and 99.70% of G. BONDwhereriskandreturnoftheportfolioare0.08%and0.02%,respectively