Description:
Using non-parametric estimates with imposing inequality restrictions, we study returns and risks of green and brown portfolios constructed from fossil fuel and clean energy ETFs. The green portfolios do not unconditionally outperform brown ones, but the outperformance of green portfolios is statistically significant under the conditional setting which incorporates climate-related information such as natural disasters and climate policy uncertainty (CPU). The conditional tests also show that brown portfolios are riskier than green ones with various measurements. Furthermore, we document that non-fundamental demands proxied by fund flows for green assets are higher than that for brown ones, which explains the outperformance of the green portfolio. Our findings are robust to alternative specifications