Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Kim, Jungmu; Park, Yuen Jung

doi:10.3390/su11133654

Cited by 2 publications

(2 citation statements)

References 37 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Furthermore, it can be seen that large corporations are more volatile than small companies, which is in line with the literature (Godfrey et al, 2009;Kim & Park, 2019). Indeed, larger companies will typically have more frequent transactions and, therefore, assume a higher risk of undesirable outcomes or events (Kimberly, 1976).…”

Section: Resultssupporting

confidence: 83%

Should risk-averse investors target the portfolios of socially responsible companies?

Martínez

Román

Martín-Cervantes

2022

View full text Add to dashboard Cite

Research background: Companies are required to implement Corporate Social Responsibility (CSR) policies to mitigate the adverse social and environmental effects of their activities and gain legitimacy in the eyes of society. Sustainability initiatives are costly for companies but, at the same time, they are important value-creation drivers. Retail and institutional investors are increasingly choosing portfolios based on CSR performance. However, the relationship between CSR and market beta has hardly been studied at all in the literature, and no direct comparison of the U.S. and European markets has been conducted. Purpose of the article: The two fundamental variables that define an investment are return and risk, and the appropriate risk-return combination depends on the profile of the investors. This research aims to analyze the relationship between CSR and market risk, understood as price volatility and measured by market beta in the U.S. and European markets. Methods: Companies listed in the S&P 500 and Euro Stoxx 300 indexes from 2015 to 2019 were examined using OLS regressions with instrumental variables (IV) and fixed effects panel data. Findings & value added: The results show that those companies with higher CSR have betas below the market index in the U.S. market as well as lower volatility, and are, therefore, more appropriate choices for risk-averse investors. However, this relationship was not confirmed in the European market. This difference may be justified by two reasons: 1) The non-adherence of the United States to the Kyoto Protocol, resulting in less strict legal regulations than in Europe; 2) In the U.S. market, betas are more aggressive, while in the European market they are more defensive, with little margin for reduction. This research contributes to the current state of knowledge by providing empirical evidence that social, environmental, and corporate governance sustainability practices reduce stock volatility in the U.S. capital market, which is highly relevant for private and institutional investors who make their investments based on moral criteria. The results are current and reliable since they cover a broad and recent period for two of the most important stock market indexes.

show abstract

Section: Resultssupporting

confidence: 83%

Should risk-averse investors target the portfolios of socially responsible companies?

Martínez

Román

Martín-Cervantes

2022

View full text Add to dashboard Cite

show abstract

“…As discussed earlier, we assumed that relative to other sophisticated traders, individual investors have a stronger preference for skewness, and the level of aggregate demand for skewness can be measured by the trading concentration on individual investors. Following Kim and Park [23], we employed the trading proportion of individual investors as a proxy for the degree of skewness demand. The KRX provides information on what type of investors trades each stock; the investor type consists of foreign, institutional, and individual investors.…”

Section: Demand For Skewnessmentioning

confidence: 99%

Individual Investors, Average Skewness, and Market Returns

Kim

Park

2020

Sustainability

Self Cite

View full text Add to dashboard Cite

Understanding individual investors’ short-term behavior toward skewness is essential for the management and investment of corporate social responsibility because the skewness-seeking behavior of individual investors, which causes a bubble in the market, makes the market as a whole more vulnerable, and it is difficult for the market to be sustainable. In the Korean stock market, we investigated whether average skewness can predict future market returns at the market level and whether the mispricing is associated with demand for the skewness of individual noise traders. Measuring the demand for skewness by the proportion of trading money of individual investors, we found that average skewness negatively predicts future market excess return when the demand for skewness is strong. The result is robust to controlling for market variance as well as other predictors. Our finding indicates that the overall market is overpriced when individual investors excessively trade to seek huge returns in spite of a small probability.

show abstract

Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Cited by 2 publications

References 37 publications

Should risk-averse investors target the portfolios of socially responsible companies?

Should risk-averse investors target the portfolios of socially responsible companies?

Individual Investors, Average Skewness, and Market Returns

Contact Info

Product

Resources

About