UBLAŽAVANJE RIZIKA VOLATILNOSTI: INTEGRACIJA ESG OBVEZNICA U PORTFELJE DRUŠTAVA ZA OSIGURANJE
MITIGATING VOLATILITY RISK: INTEGRATING ESG BONDS INTO INSURANCE COMPANY PORTFOLIOS

Author(s): Miloš Grujić
Subject(s): Business Economy / Management, Policy, planning, forecast and speculation, Financial Markets
Published by: Finrar d.o.o Banja Luka
Keywords: ESG bonds; diversification; portfolio performance; institutional investors; investment portfolio optimization; risk management; portfolio efficiency;
Summary/Abstract: The pronounced volatility of security prices and interest rate changes in financial markets pose a significant challenge for institutional investors. Due to major limitations, insurance companies bear the greatest risk due to substantial legal guidelines and considerable investment restrictions. This research investigates the possibility of optimizing investment portfolios by analyzing the effect of including bonds issued following ESG standards in traditional investment portfolios. A n optimization method based on the Markowitz diversification model tests the advantages of including such bonds. The results show that the integration of ESG-labeled bonds would have positively impacted portfolio returns, risk management, and overall portfolio efficiency during the past decade. Finally, the research emphasizes the importance of diversifying investment portfolios with such bonds to respond to the challenge of heightened volatility in financial markets, providing valuable insights fo r institutional investors and the professional community. The most important limitation of the research is the fact that Markowitz's optimization assumes a norm al distribution of returns and risks, which may not be sufficiently accurate for all financial instruments.

• Details
• Contents