Analysis of the Hedge and Safe Haven Properties of the ISE B3: Per- spectives for Local and Global Investors

Résumé

This paper investigates whether Brazil’s Corporate Sustainability Index (ISE B3) exhibits hedge, safe haven, or diversifier properties against the domestic market and international benchmarks. Using daily USD data from December 2005 to March 2026 (n = 5,086 log returns), the study applies three complementary methodologies: EGARCH(1,1) with Student-t distribution for asymmetric conditional volatility modeling; the formal Baur and Lucey (2010) test via HAC-robust OLS with quantile interaction terms; and Monte Carlo portfolio optimization with the Markowitz efficient frontier. Results show the ISE fails as a hedge or safe haven in all scenarios analyzed, with correlation with the Ibovespa exceeding 0.90 and classification as a diversifier against all six benchmarks investigated. Markowitz analysis confirms the ISE does not expand the global efficient frontier (daily return falls from 0.03865% to 0.03787% with nearly identical risk). Findings consistently show that in Brazil, systematic country risk dominates ESG factor benefits for portfolio protection purposes.