Twitter Economic Uncertainty and Herding Behavior in ESG Markets

Dimitrios Koutmos ()
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Dimitrios Koutmos: Department of Accounting, Finance, and Business Law, College of Business, Texas A&M University—Corpus Christi, Corpus Christi, TX 78412, USA

JRFM, 2024, vol. 17, issue 11, 1-19

Abstract: Attention to environmental, social, and governance (ESG) investing has grown in recent years. Even after the SARS-CoV-2 (COVID-19) global pandemic, there has been a rise in financial instruments that are structured according to certain prescribed “sustainable finance” objectives. From a risk management perspective, and as we continue to see a rise in inflows into such instruments, it is important to appreciate that ESG markets will have a growing influence on our financial system and its development. In light of this, and using a sample of some of the most common and popular US-based ESG index funds, this study explores the extent to which herding behaviors are present in such markets. From a regulatory point of view, such behaviors are important to identify, given that they can lead to excess price volatility, bubbles, and other such market-destabilizing phenomena. In addition, this study builds a framework for exploring whether Twitter-based economic uncertainty, which is arguably a forward-looking indicator of investors’ expectations, can exacerbate herding behaviors in ESG markets. Overall, this study shows the following: (i) herding behaviors are present in ESG markets; (ii) rises in Twitter economic uncertainty can potentially exacerbate such herding; (iii) although ESG funds, like traditional asset classes, generally show a negative risk–return tradeoff, this can be driven by changes in Twitter economic uncertainty.

Keywords: economic policy uncertainty; ESG investing; herding; sustainable finance; Twitter (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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