The Static and Dynamic Connectedness of Environmental, Social, and Governance Investments: International Evidence

Posted: 20 Aug 2020 Last revised: 27 Aug 2020

See all articles by Zaghum Umar

Zaghum Umar

Zayed University - College of Business; Netspar

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Spyros Papathanasiou

National and Kapodistrian University of Athens

Date Written: August 5, 2020

Abstract

We investigate the connectedness of the most significant global equity indices that comprise companies with the highest environmental, social, and governance (ESG) performance. Motivated by the rapid growth of socially responsible investing during the last two decades, we examine whether these investments are prone to similar exogenous economic and financial shocks as their conventional counterparts. Employing a variety of influential macroeconomic and financial variables over the period 10/1/2007- 4/15/2020, we document statistically significant and consistent transmissions between the employed equity indices throughout the sample period. In particular, the connectedness exhibits dynamic patterns during three periods: the European sovereign debt crisis, the systemic Greek problems, and the outbreak of the coronavirus pandemic. We also find that developed equity markets are the shock transmitters to Asian and other emerging markets. Our results highlight the risk of contagion and the diminishing portfolio diversification benefits of these equity indices during turbulent periods.

Keywords: ESG investments; connectedness; European sovereign debt crisis; COVID-19 pandemic; portfolio diversification

JEL Classification: G10; G11; G15

Suggested Citation

Umar, Zaghum and Kenourgios, Dimitris and Papathanasiou, Spyros, The Static and Dynamic Connectedness of Environmental, Social, and Governance Investments: International Evidence (August 5, 2020). Economic Modelling, Volume 93, December 2020, Pages 112-124 Doi.org/10.1016/j.econmod.2020.08.007 , Available at SSRN: https://ssrn.com/abstract=3677197

Zaghum Umar

Zayed University - College of Business ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Spyros Papathanasiou (Contact Author)

National and Kapodistrian University of Athens ( email )

1, Sofokleous Str.
Athens, 10559
Greece

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