Unraveling the relationship between betas and ESG scores through the Random Forests methodology

Pedro Antonio Martín-Cervantes () and María del Carmen Valls Martínez ()
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Pedro Antonio Martín-Cervantes: University of Valladolid
María del Carmen Valls Martínez: University of Almería

Risk Management, 2023, vol. 25, issue 3, No 4, 29 pages

Abstract: Abstract This research employs the Random Forests methodology to identify the relationship between the betas and 13 variables of financial and non-financial nature for the stocks listed in the S&P 500 index throughout the period 2015–2019. Our findings reveal according to the Relative Importance criterion that the ESG Scores constitute the main variable on the formation, determination, and sign of betas. In the same way, we verify a quasi-direct correspondence between betas and industrial sectors, finding a certain heterogeneity across the analyzed betas. The utilization of the Random Forests methodology assures the fact of obtaining relevant results since this approach inhibits the plausible correlation between the considered variables.

Keywords: Betas; ESG scores; S&P 500 index; Random Forests; Relative importance (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41283-023-00121-5

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