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Is the ESG portfolio less turbulent than a market benchmark portfolio?

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  • Abdessamad Ouchen

    (Sidi Mohamed Ben Abdellah University Fez)

Abstract

Given that there is no consensus on the fact that ESG portfolios are characterized by very high returns and very low risks compared to conventional portfolios, this study aims to empirically verify whether the series of returns of an ESG portfolio is less volatile than the returns of a benchmark market portfolio. To verify this hypothesis, we used the Markov-switching GARCH models in order to model the process of the series of daily returns of the ESG portfolio “MSCI USA ESG Select,” as well as those of the market benchmark portfolio daily returns series “S&P 500,” during the period June 01, 2005 to December 31, 2020 as well as that excluding the COVID19 crisis and from June 1, 2005 to October 29, 2019. It can be concluded that the ESG portfolio “MSCI USA ESG Select” is relatively less turbulentcompared to the market benchmark portfolio “S&P 500.”

Suggested Citation

  • Abdessamad Ouchen, 2022. "Is the ESG portfolio less turbulent than a market benchmark portfolio?," Risk Management, Palgrave Macmillan, vol. 24(1), pages 1-33, March.
    • Handle: RePEc:pal:risman:v:24:y:2022:i:1:d:10.1057_s41283-021-00077-4
    DOI: 10.1057/s41283-021-00077-4
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    Cited by:

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    2. Gianpaolo Iazzolino & Maria Elena Bruni & Stefania Veltri & Donato Morea & Giovanni Baldissarro, 2023. "The impact of ESG factors on financial efficiency: An empirical analysis for the selection of sustainable firm portfolios," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1917-1927, July.
    3. Tatarnikova, Olga & Duchêne, Sébastien & Sentis, Patrick & Willinger, Marc, 2023. "Portfolio instability and socially responsible investment: Experiments with financial professionals and students," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    4. Taeisha Nundlall & Terence L Van Zyl, 2023. "Machine Learning for Socially Responsible Portfolio Optimisation," Papers 2305.12364, arXiv.org.
    5. Hemendra Gupta & Rashmi Chaudhary, 2023. "An Analysis of Volatility and Risk-Adjusted Returns of ESG Indices in Developed and Emerging Economies," Risks, MDPI, vol. 11(10), pages 1-18, October.
    6. Hamzeh F. Assous, 2022. "Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models," Economies, MDPI, vol. 10(10), pages 1-18, October.
    7. Xin Wang & Xiayun Song & Mingyang Sun, 2023. "How Does a Company’s ESG Performance Affect the Issuance of an Audit Opinion? The Moderating Role of Auditor Experience," IJERPH, MDPI, vol. 20(5), pages 1-17, February.
    8. Maria Rodionova & Angi Skhvediani & Tatiana Kudryavtseva, 2022. "ESG as a Booster for Logistics Stock Returns—Evidence from the US Stock Market," Sustainability, MDPI, vol. 14(19), pages 1-26, September.

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    More about this item

    Keywords

    Markov-switching GARCH models; ESG portfolio; Volatility;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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