Environmentally Responsible and Conventional Market Indices’ Reaction to Natural and Anthropogenic Adversity: A Comparative Analysis

Abstract

It is widely claimed that climate change has increased the magnitude and the frequency of natural phenomena such as storms, droughts, and floods with the concomitant costs in terms of damages and victims. This paper using weekly data from global stock market indices in a Fama-French model, examines how and to what extent market agents and investors react to such events. As a yardstick for comparison purposes, the possible market impact of industrial accidents is also incorporated and examined in the empirical investigation. The study uses in a comparative approach the STOXX Global ESG Environmental Leaders index and the STOXX Global index diversified across 1800 top companies. Results reported herein seem to indicate that natural and anthropogenic adversity have no immediate impact on the stock indices, while wildfires have an immediate reduction impact on market risk in the case of the ESG Environmental Leaders index. Moreover, wildfires and industrial accidents appear to cause a significant reduction of systematic risk over the next week following the incident. However, the magnitude of the effect is higher in the case of the ESG Environmental Leaders stock index. Finally, the effect on systematic risk by industrial accidents is temporarily without any lasting imprint.

Public Attention to Environmental Issues and Stock Market Returns

“…the S&P 500 Index and the FTSE USA Index. The main con-tribution of our empirical analysis to previous studies is two-fold: First, in contrast to many firm-level studies as discussed above or also to Lei and Shcherbakova (2015) analyzing the effect of the Fukushima nuclear disaster on the financial performance of portfolios of renewable, nuclear, and coal firms and to Kollias and Papadamou (2016) analyzing the effects of natural weather disasters on the returns on a sustainability stock index, we do not only apply the common event study methodology. Such event studies generally consider a short period around the event date and assume that capital markets are sufficiently efficient to react upon unexpected events (i.e.…”

“…As aforementioned, Kollias and Papadamou (2016) examine how the financial performance of a sustainability stock index (i.e. the STOXX Global ESG Environmental Leaders Index) reacts to major natural weather disasters (i.e.…”

“…their study is based on the strong assumption that a natural weather disaster contributes to public environmental attention. Therefore, we extend the empirical analysis of Kollias and Papadamou (2016) by examining the direct effects of (the strength of) media attention and the GSVI in terms of environmental issues on the returns on sustainability and conventional stock indices.…”

“…Therefore, it is useful to jointly analyze both types of public attention. In line with the empirical analysis of Kollias and Papadamou (2016), we additionally examine the effects of global natural weather disasters (i.e. extreme temperatures, storms, droughts, floods, and wildfires) that are connected with climate change.…”

Alternative to Insurance Risk Transfer: Creating a catastrophe bond for Romanian earthquakes

“…Climate change and human intervention have increased the magnitude and frequency of natural disasters that affect all aspects of economic activity, raising concern on environmental issues such as sustainability and human-nature symbiosis. Kollias and Papadamou (2016) examine how and to what extent market agents and investors react to catastrophic events, focusing mainly on extreme temperature events, storms, floods, wildfires and industrial accidents. The results indicate that natural and anthropogenic catastrophes have no immediate impact on stock indices.…”