Rolling window wavelets; Socially responsible stocks; Wavelets transformation
This paper investigates the presence of integration between six socially responsible stocks for the purpose of portfolio composition. Data for our study are based on the daily frequency and range from March 2016 to April 2019. Our results highlight that Gender Diversity funds exhibit a low correlation pattern with Low Carbon, Social Choice and USA ESG funds, whereas the Social Choice equity demonstrates a low correlation pattern with USA ESG and Social ETF funds across all decomposed scales. These results are also supported by the findings of non-linear Granger causality test across all investment horizons, i.e. from D1 to D8. Our results imply the inclusion of different asset classes together with socially responsible funds in a portfolio which may have useful implications for investors. Research Highlights We investigate the co-movement between socially responsible funds returns. We decompose the correlation between socially responsible funds using maximal overlap discrete wavelet transformation (MODWT). Decomposed correlations are further captured using the multi-scale rolling window wavelet coherence Non-linear Granger causality is applied to infer implications for risk spillover under short-, medium- and long-run investment horizons. Results suggest that the inclusion of different asset classes together with socially responsible funds can yield optimal returns.