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The impact of news on the volatility of ESG firms

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  • Sabbaghi, Omid

Abstract

This study provides one of the first empirical investigations of asymmetric volatility for environmental, social, and governance (ESG) investing. Using the Morgan Stanley Capital International (MSCI) indices as proxies for ESG test assets, this study investigates volatility risk for the highest ESG-rated firms through an empirical analysis in assessing how good news and bad news impact the risk of ESG firms. The analysis provides empirical evidence in support of the hypothesis that the impact of news on the volatility of ESG firms is larger for bad news, compared to good news. Employing an EGARCH framework, the analysis also finds that, in response to bad news, the observed volatility increases for small size ESG firms is lower compared to large and mid-cap ESG firms. The findings provide evidence of a slow response by small size firms to news in an ESG context. In modeling the conditional volatility of the ESG test assets, the analysis also provides evidence of higher persistence in the conditional volatility dynamics for small size ESG firms.

Suggested Citation

  • Sabbaghi, Omid, 2022. "The impact of news on the volatility of ESG firms," Global Finance Journal, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:glofin:v:51:y:2022:i:c:s1044028320302702
    DOI: 10.1016/j.gfj.2020.100570
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    2. Ignatov, Konstantin, 2023. "When ESG talks: ESG tone of 10-K reports and its significance to stock markets," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Cássio Zanatto & Margarida Catalão‐Lopes & Joaquim P. Pina & Inês Carrilho‐Nunes, 2023. "The impact of ESG news on the volatility of the Portuguese stock market—Does it change during recessions?," Business Strategy and the Environment, Wiley Blackwell, vol. 32(8), pages 5821-5832, December.

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    More about this item

    Keywords

    Environmental-social-governance (ESG) investments; News impact; EGARCH; Socially responsible investing; ESG volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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