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Return and Risk Spillovers between ESG Global Index and Stock Markets: Evidence from Time and Frequency Analysis

Author

Listed:
  • Kılıç, Yunus
  • Destek, Mehmet Akif
  • Cevik, Emrah Ismail
  • Bugan, Mehmet Fatih
  • Korkmaz, Oya
  • Dibooglu, Sel

Abstract

In this paper, we examine the comovements between stock market returns and investments that take into account Environmental, Social, and Governance (ESG) factors by studying interconnections between the two returns in time and frequency space. We study interdependencies between the conventional stock market and ESG stocks using daily data from 2007 – 2021 for a set of 19 developing and 19 developed countries. Our results show significant comovement patterns between ESG returns and stock returns at various frequencies, time scales, and various sample episodes in all countries, particularly over financial turmoil episodes. For the most part, we document positive (in-phase) comovements between the stock returns and ESG returns in developing countries and negative (out-of-phase) comovements in developed countries. This implies limited portfolio gains from adding ESG stocks to portfolio diversification in developing countries but significant gains in developed countries.

Suggested Citation

  • Kılıç, Yunus & Destek, Mehmet Akif & Cevik, Emrah Ismail & Bugan, Mehmet Fatih & Korkmaz, Oya & Dibooglu, Sel, 2022. "Return and Risk Spillovers between ESG Global Index and Stock Markets: Evidence from Time and Frequency Analysis," MPRA Paper 117557, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117557
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    References listed on IDEAS

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    Cited by:

    1. Rahul Verma & Rajesh Mohnot, 2023. "Relative Impact of the U.S. Energy Market Sentiments on Stocks and ESG Index Returns: Evidence from GCC Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 290-300, March.
    2. Oluwatoyin Abayomi Amuda & Ayotunde Qudus Saka, 2025. "Robert Gordon University, Department of Accounting and Finance, Aberdeen Business School," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(4), pages 4444-4463, April.
    3. Wan, Jieru & Yin, Libo & Wu, You, 2024. "Return and volatility connectedness across global ESG stock indexes: Evidence from the time-frequency domain analysis," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 397-428.
    4. Mandas, Marco & Lahmar, Oumaima & Piras, Luca & De Lisa, Riccardo, 2024. "ESG reputational risk and market valuation: Evidence from the European banking industry," Research in International Business and Finance, Elsevier, vol. 69(C).
    5. He, Xie & Hamori, Shigeyuki, 2024. "Asymmetric Higher-Moment spillovers between sustainable and traditional investments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 97(C).
    6. 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).
    7. Naysary, Babak & Shrestha, Keshab, 2024. "Financial technology and ESG market: A wavelet-DCC GARCH approach," Research in International Business and Finance, Elsevier, vol. 71(C).
    8. Esparcia, Carlos & Gubareva, Mariya & Sokolova, Tatiana & Jareño, Francisco, 2025. "Cross-border ESG rating dynamics: An in-depth connectedness analysis of portfolio returns and volatilities in the USA and Canada," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    9. Zhuoqi Teng & Renhong Wu & Yugang He & Anibal Coronel, 2023. "Swings in Crude Oil Valuations: Analyzing Their Bearing on China’s Stock Market Returns amid the COVID-19 Pandemic Upheaval," Discrete Dynamics in Nature and Society, Hindawi, vol. 2023, pages 1-10, June.
    10. Deng, Jing & Liu, Yejiao & Zhuang, Zhitao & Gu, Xuesong & Xing, Xiaoyun, 2024. "Do China and USA differ in the interrelationship between green bond and ESG markets?," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 919-934.
    11. Jiahui Su & Yidi Sun, 2023. "An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises," Sustainability, MDPI, vol. 15(13), pages 1-20, June.
    12. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2023. "Does market sentiment and global uncertainties influence ESG-oil nexus? A time-frequency analysis," Resources Policy, Elsevier, vol. 86(PA).

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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