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The power of ethical investment in the context of political uncertainty

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  • Lucía Morales
  • Amparo Soler-Domínguez
  • James Hanly

Abstract

In this paper we analyse a set of socially responsible investment (SRI) indices against their conventional counterparts in the US context. Using a data set that spans the Obama and Trump administrations, we aim to identify whether performance and volatility patterns differ when markets are exposed to political uncertainty and the Global Financial Crisis (GFC). The findings suggest that SRI indices underperform conventional indices, and that the S&P 500 has a significant impact on their behaviour. The CBOE’s Volatility Index (VIX), the US Equity Related Economic Uncertainty Index (EEUi) and the impact of the economic policy uncertainty index (EPUi) are used to consider market volatility and political uncertainty, with VIX emerging as the best indicator to capture market uncertainty. The study signals a positive and significant impact on SRI indices during the first hundred days of the Obama administration with a lack of significant findings for the Trump administration for the period of study. The results for implied volatility reveal similar patterns across all indices.

Suggested Citation

  • Lucía Morales & Amparo Soler-Domínguez & James Hanly, 2019. "The power of ethical investment in the context of political uncertainty," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 554-580, January.
    • Handle: RePEc:taf:recsxx:v:22:y:2019:i:1:p:554-580
    DOI: 10.1080/15140326.2019.1683264
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    Cited by:

    1. de Oliveira, Erick Meira & Cunha, Felipe Arias Fogliano de Souza & Palazzi, Rafael Baptista & Klotzle, Marcelo Cabus & Maçaira, Paula Medina, 2020. "On the effects of uncertainty measures on sustainability indices: An empirical investigation in a nonlinear framework," International Review of Financial Analysis, Elsevier, vol. 70(C).
    2. Omura, Akihiro & Roca, Eduardo & Nakai, Miwa, 2021. "Does responsible investing pay during economic downturns: Evidence from the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 42(C).
    3. Rehman, Mobeen Ur & Ahmad, Nasir & Vo, Xuan Vinh, 2022. "Asymmetric multifractal behaviour and network connectedness between socially responsible stocks and international oil before and during COVID-19," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 587(C).

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