ESG Indices Efficiency in Five MENA Countries: Application of the Hurst Exponent

Abstract

The efficient market hypothesis (EMH) is one of the main theories related to financial markets. This hypothesis is based on the idea that stock prices already reflect all available market information. In its weak form, the EMH states that future prices cannot be predicted by analyzing historical asset prices. This paper aims to test the effectiveness of environmental, social and governance (ESG) indices in the Middle East and North Africa region (MENA) and compare them with their conventional counterparts. The sample data covers the period from September 27 2018 to December 23 2021 in daily frequency. Our empirical approach is based on Hurst behavior using the R/S statistic. The results reject the market efficiency hypothesis for both ESG and conventional indices and show that these indices are significantly inefficient with persistent returns. In terms of the level of efficiency between the ESG and conventional indices, the study does not indicate significant differences.

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

“…Olivares-Sánchez et al ( 2022) assert that market efficiency, a fundamental concept in finance, determines the extent to which asset prices reflect available information. The Efficient Market Hypothesis (EMH) states that asset prices fully integrate available information, rendering consistent outperformance of the market by investors impossible (Harabida et al, 2023). This theory describes three forms of market efficiency: weak efficiency, semi-strong efficiency, and strong efficiency, each defining the extent to which information is incorporated into asset prices (Souza & De França Carvalho, 2023).…”