 A quantitative model of sustainability risk in financeTakashi Kanamura Journal of Commodity Markets, 2025, vol. 37, issue C Abstract: We aim to formulate sustainability risk (Srisk) quantitatively in finance for the first time and validate the formulation by conducting empirical analyses. Applying the general sustainability concept to finance supported by existing studies proposes a new financial and quantitative model of Srisk defined by the price differences between sustainable and conventional assets and characterized by mean-reversion, cyclicity, and diversification effects on market risk. Then, the parameter estimation results of the model using ESG and the corresponding stock indexes confirm these three characteristics and indicate the convergence of expected returns of ESG indexes over stock indexes, resulting in the feasibility of securing returns in the pairs trading. Finally, we discuss the model’s robustness regarding Srisk’s three characteristics and the regime-switching of Srisk’s mean-reversion due to fundamental shifts by conducting econometric analyses of sustainable asset prices. Keywords: Sustainability risk; Mean-reversion; Cyclicity; Diversification effect; ESG indexes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:37:y:2025:i:c:s2405851325000017 DOI: 10.1016/j.jcomm.2025.100457 Access Statistics for this article Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard More articles in Journal of Commodity Markets from Elsevier |
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