Performance and Factor Structure of Green, Grey and Red Securities

33 Pages Posted: 13 May 2021

Date Written: January 1, 2021


The purpose of this research is to determine the factors that are important in explaining the Green (eco-friendly), Grey (neutral), and Red (eco-enemy) EU securities returns. This study investigates the factors that influence performance over time, before and after the crisis (breakpoint, 2009) — the analysis is divided into two parts. In the first part, we study the factor structure of our specific universe stocks in each category, and in the second part, we distinguish the financial performance between Green and Red stock. We define Green stocks, those in the primary business that are relatively beneficial to the environment, and Red as, harmful to the environment. Our analysis applies the asset pricing models from the Fama-French Model (3-factor model and 5-factor model) and the Carhart Model (4-factor model) and two-step regression for the comparison models. The research findings show that our asset class underperforms relative to the applied signals from the market index and the other macro-factors. Moreover, the exposures from the global factors are changing from period to period, which shows the depression affected the asset class's sensitivity. However, we observed that the Grey and Red assets were affected more than the Green ones after the slump. Lastly, our firm evidence shows that the Red securities initiate a superior performance compared to Green securities.

Keywords: Asset Pricing Models, European Stock Market, Factor Analysis, Green Securities, Red Securities, Grey Securities, Performance analysis

JEL Classification: G11, G12, C5

Suggested Citation

Kottas, Ferdinantos, Performance and Factor Structure of Green, Grey and Red Securities (January 1, 2021). Available at SSRN: or

Ferdinantos Kottas (Contact Author)

Maynooth University ( email )

2nd Floor
Iontas Building
Maynooth, County Kildare W23 F2H6

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