Connectedness of biodiversity finance assets with equity, bond, commodities, cryptocurrency and currency: implications for portfolio diversification and hedging

Purpose The purpose of this study is to explore the connectedness between five biodiversity finance assets and major asset classes. This study also aims to measure the portfolio diversification and hedging benefits of biodiversity assets. Design/methodology/approach The connectedness among the assets is measured by covering daily data spanning September 30, 2022, to October 7, 2024. The connectedness is examined using the quantile vector autoregression method and portfolio performance using different techniques in R software. Findings The connectedness analysis reveals the existence of partial connections among the assets. The portfolio analysis highlights that including biodiversity finance assets in a portfolio can yield higher Sharpe, Sortino, Calmar and Sterling ratios. Biodiversity finance assets also offers hedging benefits. Originality/value This study is novel in sense as, to the best of the author’s knowledge, it is the first study to measure the portfolio diversification and hedging benefits from the biodiversity finance assets. These assets offer significant benefits to the private investors, but no study has explored it.