From Financial to Carbon Diversification – The Potential of Physical Gold

25 Pages Posted: 14 Mar 2020

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Josua Oll

University of Hamburg

Date Written: May 1, 2019

Abstract

Gold is a well-known diversifier of financial risk with a long history as a physical asset. This paper analyzes whether gold provides additional environmental benefits in the portfolio context. We show that the addition of gold to a diversified equity portfolio does not only enhance the risk-return relationship but also its sustainability by reducing the portfolio’s carbon emissions. If carbon emissions are fully accounted for at the production (firm) level, physical gold holdings have zero CO2 emissions. Even if CO2 emissions are fully assigned to physical gold holdings, gold becomes a CO2 diversifier if held over longer periods. Our study highlights the critical role of physical assets and the investment horizon in the sustainability analysis of portfolios.

Keywords: gold, physical assets, sustainability, carbon emissions

JEL Classification: G11, Q02, Q50

Suggested Citation

Baur, Dirk G. and Oll, Josua, From Financial to Carbon Diversification – The Potential of Physical Gold (May 1, 2019). Energy Economics, Vol. 81 (C), pages 1002-1010, 2019, Available at SSRN: https://ssrn.com/abstract=3539258 or http://dx.doi.org/10.2139/ssrn.3539258

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Josua Oll

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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