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Does Sustainability Engagement Affect Stock Return Volatility? Evidence from the Chinese Financial Market

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  • Junru Zhang

    (School of Business and Law, Edith Cowan University, Joondalup WA 6027, Australia)

  • Hadrian Geri Djajadikerta

    (School of Business and Law, Edith Cowan University, Joondalup WA 6027, Australia)

  • Zhaoyong Zhang

    (School of Business and Law, Edith Cowan University, Joondalup WA 6027, Australia)

Abstract

This paper examines the impact of firms’ sustainability engagement on their stock returns and volatility by employing the EGARCH and FIGARCH models using data from the major financial firms listed in the Chinese stock market. We find evidence of a positive association between sustainability engagement and stock returns, suggesting firms’ sustainability news release in favour of the market. Although volatility persistence can largely be explained by news flows, the results show that sustainability news release has the significant and largest drop in volatility persistence, followed by popularity in Google search engine and the general news. Sustainability news release is found to affect positively stock return volatility. We also find evidence that market expectation can be driven by the dominant social paradigm when sustainability is included. These findings have important implications for market efficiency and effective portfolio management decisions.

Suggested Citation

  • Junru Zhang & Hadrian Geri Djajadikerta & Zhaoyong Zhang, 2018. "Does Sustainability Engagement Affect Stock Return Volatility? Evidence from the Chinese Financial Market," Sustainability, MDPI, vol. 10(10), pages 1-21, September.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:10:p:3361-:d:170985
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