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Data-Driven Sustainable Investment Strategies: Integrating ESG, Financial Data Science, and Time Series Analysis for Alpha Generation

Author

Listed:
  • Afreen Sorathiya

    (BTech CSE Data Science, Dwarkadas J Sanghvi College of Engineering, Mumbai 400056, India)

  • Pradnya Saval

    (BTech CSE Data Science, Dwarkadas J Sanghvi College of Engineering, Mumbai 400056, India)

  • Manha Sorathiya

    (B. Sc. Economics and Finance, University of London, London WC1E 7HU, UK)

Abstract

In today’s investment landscape, the integration of environmental, social, and governance (ESG) factors with data-driven strategies is pivotal. This study delves into this fusion, employing sophisticated statistical techniques and Python programming to unveil insights often overlooked by traditional approaches. By analyzing extensive datasets, including S&P500 financial indicators from 2012 to 2021 and 2021 ESG metrics, investors can enhance portfolio performance. Emphasizing ESG integration for sustainable investing, the study underscores the potential for alpha generation. Time series analysis further elucidates market dynamics, empowering investors to align with both financial objectives and ethical values. Notably, the research uncovers a positive correlation between ESG risk and total risk, suggesting that companies with lower ESG risk tend to outperform those with higher ESG risk. Moreover, employing a long–short ESG risk strategy yields abnormal returns of approximately 4.37%. This integration of ESG factors not only mitigates risks associated with environmental, social, and governance issues but also capitalizes on opportunities for sustainable growth, fostering responsible investing practices and ensuring long-term financial returns, resilience, and value creation.

Suggested Citation

  • Afreen Sorathiya & Pradnya Saval & Manha Sorathiya, 2024. "Data-Driven Sustainable Investment Strategies: Integrating ESG, Financial Data Science, and Time Series Analysis for Alpha Generation," IJFS, MDPI, vol. 12(2), pages 1-23, April.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:2:p:36-:d:1379511
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    References listed on IDEAS

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    1. Gil Cohen, 2023. "The impact of ESG risks on corporate value," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1451-1468, May.
    2. Xin-Zhou Qi & Zhong Ning & Meng Qin, 2022. "Economic policy uncertainty, investor sentiment and financial stability—an empirical study based on the time varying parameter-vector autoregression model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(3), pages 779-799, July.
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