IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v88y2023icp27-46.html

Hedging Covid-19 risk with ESG disclosure

Author

Listed:
  • Jin, Yuqian
  • Liu, Qingfu
  • Tse, Yiuman
  • Zheng, Kaixin

Abstract

Covid-19 has led to major changes worldwide and has had a significant impact on market risk. We characterize this uncertainty as innovations extracted from the Covid Risk Index on the Wall Street Journal through a textual analysis of high-dimensional data. We hedge the risk with mimicking portfolios constructed using the ESG (environmental, social, and governance) disclosure score as a measure of firm-level exposure to Covid-19 risk. The hedge portfolios perform well both in and out of sample. We also test the role of ESG in hedging and discover that during the Covid-19 pandemic firms with greater ESG disclosure generate higher returns as well as experience lower downside risk. The further analysis suggests that the portfolio returns can be explained by Covid risk shock and investment inflow, and the hedge effect mainly comes from the social part of ESG.

Suggested Citation

  • Jin, Yuqian & Liu, Qingfu & Tse, Yiuman & Zheng, Kaixin, 2023. "Hedging Covid-19 risk with ESG disclosure," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 27-46.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:27-46
    DOI: 10.1016/j.iref.2023.06.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056023001648
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2023.06.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Zachary Folger-Laronde & Sep Pashang & Leah Feor & Amr ElAlfy, 2022. "ESG ratings and financial performance of exchange-traded funds during the COVID-19 pandemic," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(2), pages 490-496, April.
    3. Lamont, Owen A., 2001. "Economic tracking portfolios," Journal of Econometrics, Elsevier, vol. 105(1), pages 161-184, November.
    4. Conlon, Thomas & Corbet, Shaen & McGee, Richard J., 2020. "Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 54(C).
    5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    6. Chemkha, Rahma & BenSaïda, Ahmed & Ghorbel, Ahmed & Tayachi, Tahar, 2021. "Hedge and safe haven properties during COVID-19: Evidence from Bitcoin and gold," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 71-85.
    7. Broadstock, David C. & Chan, Kalok & Cheng, Louis T.W. & Wang, Xiaowei, 2021. "The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China," Finance Research Letters, Elsevier, vol. 38(C).
    8. Basu, Devraj & Miffre, Joëlle, 2013. "Capturing the risk premium of commodity futures: The role of hedging pressure," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2652-2664.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Talan, Gaurav & Sharma, Gagan Deep & Pereira, Vijay & Muschert, Glenn W., 2024. "From ESG to holistic value addition: Rethinking sustainable investment from the lens of stakeholder theory," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    2. Ahad, Muhammad & Imran, Zulfiqar Ali & Shahzad, Khurram, 2024. "Safe haven between European ESG and energy sector under Russian-Ukraine war: Role of sustainable investments for portfolio diversification," Energy Economics, Elsevier, vol. 138(C).
    3. Liu, Qingfu & Shi, Chen & Tse, Yiuman & Zhang, Linlin, 2023. "The impact of public health emergencies on small and medium-sized enterprises: Evidence from China," Global Finance Journal, Elsevier, vol. 58(C).
    4. Guo, Kun & Li, Yichong & Zhang, Yunhan & Chen, Yingtong & Ma, Yanran, 2024. "Cross-country risk spillovers of ESG stock indices: Dynamic patterns and the role of climate transition risks," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    5. Yousaf, Imran & Bejaoui, Azza & Ali, Shoaib & Li, Yanshuang, 2024. "Demystifying the dynamic relationship between news sentiment index and ESG stocks: Evidence from time-frequency wavelet analysis," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    6. Janik, Bogna & Płuciennik, Piotr, 2024. "Corporate ESG indices and stability during periods of deep concerns in financial markets," Finance Research Letters, Elsevier, vol. 70(C).
    7. Liu, Qingfu & Shi, Chen & Tse, Yiuman & Wang, Chuanjie, 2023. "The value of communication during pandemics," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    8. Alhajjeah, Diana & Besim, Mustafa & Al-Hajieh, Heitham, 2025. "Mitigating crisis impact: The influence of corporate social responsibility on non-financial firms’ financial performance," International Review of Economics & Finance, Elsevier, vol. 101(C).
    9. Yifan Wu & Ziang Qiu, 2025. "Economic policy uncertainty and enterprise ESG performance: evidence from listed companies in China," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 52(4), pages 989-1014, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kliber, Agata, 2022. "Looking for a safe haven against American stocks during COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    2. Marinescu, Ion-Iulian & Mirza, Nawazish & Horobet, Alexandra & Belascu, Lucian, 2025. "Hedging uncertainty: Bitcoin's asymmetric diversification benefits in factor-based portfolios," The Quarterly Review of Economics and Finance, Elsevier, vol. 102(C).
    3. Mai T. Said & Mona A. ElBannan, 2025. "Stock market reaction to COVID-19 outbreak: evidence from ESG firms in emerging economies," Journal of Asset Management, Palgrave Macmillan, vol. 26(2), pages 136-158, March.
    4. Xu, Lei & Kinkyo, Takuji, 2023. "Hedging effectiveness of bitcoin and gold: Evidence from G7 stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    5. Ştefan Cristian Gherghina & Liliana Nicoleta Simionescu, 2023. "Exploring the asymmetric effect of COVID-19 pandemic news on the cryptocurrency market: evidence from nonlinear autoregressive distributed lag approach and frequency domain causality," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-58, December.
    6. Jin, Changlun & Tian, Xiujuan, 2024. "Enhanced safe-haven status of Bitcoin: Evidence from the Silicon Valley Bank collapse," Finance Research Letters, Elsevier, vol. 59(C).
    7. Echaust, Krzysztof & Just, Małgorzata & Kliber, Agata, 2024. "To hedge or not to hedge? Cryptocurrencies, gold and oil against stock market risk," International Review of Financial Analysis, Elsevier, vol. 94(C).
    8. Zhang, Yulian & Hamori, Shigeyuki, 2025. "Portfolio implications based on quantile connectedness among cryptocurrency, stock, energy, and safe-haven assets," Journal of Commodity Markets, Elsevier, vol. 39(C).
    9. Conlon, Thomas & Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2024. "Bitcoin forks: What drives the branches?," Research in International Business and Finance, Elsevier, vol. 69(C).
    10. Chkili, Walid & Ben Rejeb, Aymen & Arfaoui, Mongi, 2021. "Does bitcoin provide hedge to Islamic stock markets for pre- and during COVID-19 outbreak? A comparative analysis with gold," Resources Policy, Elsevier, vol. 74(C).
    11. Acikgoz, Turker, 2025. "Gold and Bitcoin as hedgers and safe havens: Perspective from nonlinear dynamics," Resources Policy, Elsevier, vol. 102(C).
    12. Nakagawa, Kei & Sakemoto, Ryuta, 2024. "Commodity sectors and factor investment strategies," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    13. Just, Małgorzata & Echaust, Krzysztof, 2024. "Cryptocurrencies against stock market risk: New insights into hedging effectiveness," Research in International Business and Finance, Elsevier, vol. 67(PA).
    14. I-Chun Tsai, 2024. "Features of different asset types and extreme risk transmission during the COVID-19 crisis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-42, December.
    15. Tachibana, Minoru, 2022. "Safe haven assets for international stock markets: A regime-switching factor copula approach," Research in International Business and Finance, Elsevier, vol. 60(C).
    16. Atanda Mustapha Saidi, 2017. "Working Paper 273 - Stock (Mis)pricing and investment dynamics in Africa," Working Paper Series 2390, African Development Bank.
    17. Andreas Renard Widarto & Harjum Muharam & Sugeng Wahyudi & Irene Rini Demi Pangestuti, 2022. "ASEAN-5 and Crypto Hedge Fund: Dynamic Portfolio Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.
    18. Diniz-Maganini, Natalia & Diniz, Eduardo H. & Rasheed, Abdul A., 2021. "Bitcoin’s price efficiency and safe haven properties during the COVID-19 pandemic: A comparison," Research in International Business and Finance, Elsevier, vol. 58(C).
    19. Costanza Torricelli & Beatrice Bertelli, 2022. "ESG screening strategies and portfolio performance: how do they fare in periods of financial distress?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0087, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    20. Arfaoui, Nadia & Naeem, Muhammad Abubakr & Boubaker, Sabri & Mirza, Nawazish & Karim, Sitara, 2023. "Interdependence of clean energy and green markets with cryptocurrencies," Energy Economics, Elsevier, vol. 120(C).

    More about this item

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:27-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.