Sustainability and Ethics in the Process of Price Determination in Financial Markets: A Conceptual Analysis

Maria-Teresa Bosch-Badia, Joan Montllor-Serrats and Maria-Antonia Tarrazon-Rodon
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Maria-Teresa Bosch-Badia: Deparment of Economics, Universitat de Girona, Campus de Montilivi, 17071 Girona, Spain
Joan Montllor-Serrats: Department of Business, Universitat Autonoma de Barcelona, 08193 Cerdanyola del Valles, Spain
Maria-Antonia Tarrazon-Rodon: Department of Business, Universitat Autonoma de Barcelona, 08193 Cerdanyola del Valles, Spain

Sustainability, 2018, vol. 10, issue 5, 1-24

Abstract: This paper explores how financial markets can support the practical applicability of Sustainability Development Goals (SDGs) principles and why ethics has a central role in this process. The efficient market hypothesis holds that a financial market is efficient when prices equate value. Extending this assertion to sustainability, it can be said that prices should become equal to sustainable value. Prices can be regarded as the addition of the present value of future expectations and the impact of short-term volatility. This property parallels the existence of two different types of shareholders: long-run shareholders, who are often involved in the management of the corporation, and short-run shareholders, who usually apply speculative strategies to the choice of their investments. The SGDs’ principles are logically thought for a long-run horizon. Their impact on corporate value stems mainly from the changes they introduce in environmental and social risk, apart from becoming a potential source of innovation. Nevertheless, their effects on the short-run perspective can be very small unless either market traders assume sustainability as a goal of their own or the sustainability effects are incorporated into prices. We hold that the second issue is safer and preferable. Both involve ethics: the former would require that investors perform any trade from an ethical perspective. The latter needs that the ethical emphasis is placed on the process of price determination. The achievement of this goal demands a wide display of information on sustainability, placed together with financial information, and appropriate regulation. Its analysis considers the principles of behavioral finance.

Keywords: sustainable development goals; principles for responsible investment; ethical investing; financial markets (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:5:p:1638-:d:147912

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