The static and dynamic connectedness of environmental, social, and governance investments: International evidence

Document Type

Article

Source of Publication

Economic Modelling

Publication Date

12-1-2020

Abstract

© 2020 Elsevier B.V. We investigate the connectedness of the most significant global equity indices that comprise companies with the highest environmental, social, and governance (ESG) performance. Motivated by the rapid growth of socially responsible investing during the last two decades, we examine whether these investments are prone to similar exogenous economic and financial shocks as their conventional counterparts. Employing a variety of influential macroeconomic and financial variables over the period 10/1/2007–4/15/2020, we document statistically significant and consistent transmissions between the employed equity indices throughout the sample period. In particular, the connectedness exhibits dynamic patterns during three periods: the European sovereign debt crisis, the systemic Greek problems, and the outbreak of the coronavirus pandemic. We also find that developed equity markets are the shock transmitters to Asian and other emerging markets. Our results highlight the risk of contagion and the diminishing portfolio diversification benefits of these equity indices during turbulent periods.

ISSN

0264-9993

Publisher

Elsevier B.V.

Volume

93

First Page

112

Last Page

124

Disciplines

Business

Keywords

Connectedness, COVID-19 pandemic, ESG investments, European sovereign debt crisis, Portfolio diversification

Scopus ID

85089524596

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Bronze: This publication is openly available on the publisher’s website but without an open license

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