Are Sustainability Indices Infected by the Volatility of Stock Indices? Analysis before and after the COVID-19 Pandemic

Manuel Carlos Nogueira () and Mara Madaleno
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Manuel Carlos Nogueira: ISPGAYA–Higher Polytechnic Institute of Gaya, Avenida dos Descobrimentos 303, Santa Marinha, 4400-103 Vila Nova de Gaia, Portugal
Mara Madaleno: GOVCOPP–Research Unit in Governance, Competitiveness and Public Policy, Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), University of Aveiro, 3810-193 Aveiro, Portugal

Sustainability, 2022, vol. 14, issue 22, 1-13

Abstract: Considering the growing importance of sustainable investments worldwide, we explore the volatility transmission effects between the EURO STOXX Sustainability Index and the stock market indexes of its stocks. Using daily index return data, during 2000–2022, covering the COVID-19 pandemic, Multivariate Generalized Auto-Regressive Conditional Heteroskedasticity (MGARCH) models are used to explore if volatility effects of the stock indices felt during the pandemic implied any evolution in the effects already felt between the volatilities existing in these stock indices and the effects of stock market indices’ volatility over the sustainability index. Results point to the great dependence that the sustainability index has on stock index movements. The volatility felt in stock indices during the pandemic period did not become decisive in reversing a previous correlation trajectory between the stock market and sustainability indexes. Provided that sustainability is not observed exclusively in financial and economic terms, but in a triple bottom line context (including the social and environmental sides), we should not verify a high influence of stock market indexes over the sustainability index, as the results point out. Policymakers and investors should be aware of the high influence and take measures to turn the sustainability index more independent.

Keywords: EURO STOXX sustainability index; European stock indexes; COVID-19 pandemic; MGARCH models; volatility spreads (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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