Random Walk of Socially Responsible Investment in Emerging Market

Abstract

Emerging markets offer some of the world’s most impactful investment possibilities for investors concerned with addressing global climate and socioeconomic issues. Sophisticated investors conjectured that socially responsible investment (SRI) or environmental social and governance (ESG) might give greater returns than investing in conventional stocks in an emerging market. At the same time, the investors favour conserving the environment while generating long-term economic growth. Being able to earn greater returns is an indication of an inefficient market. This paper investigates the random walk (weak-form of the efficient market) of SRI/ESG indices in the emerging market (based on IMF emerging market criteria). We use the daily data as a sample. Random walk is tested using an Augmented Dickey–Fuller (ADF) Unit Root test, Variance ratio test and Hurst exponent test. The findings report that all the indices are not following a random walk. Lack of ESG disclosure, inadequate corporate governance regulation and behavioural bias might be reasons for market inefficiency. Its implications for investors to reap abnormal market returns by identifying the undervalued stock in the emerging economies. The regulator’s approval of operational guidelines and the licensing of exchanges and clearing houses help maintain the markets’ fairness. Then, the regulator should intensify corporate governance enhancement, implementation and enforcement continuously; enhance the market and institutional infrastructure, and focus policy on encouraging a more significant and more diverse investor base.

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

“…The literature on financial market efficiency has been enriched by new methodologies for evaluating efficiency, notably the Hurst exponent (Hurst, 1951). The latter is considered a primary measure for detecting efficiency and long-run memory in financial time series (Corazza & Malliaris, 2002;Cajueiro & Tabak, 2005;Grech & Pamula, 2008;Onali & Goddard, 2011;Mynhardt et al, 2017;Al-Faryan & Dockery, 2021;Caporale et al, 2022;López & Mansilla, 2021;Tadoori & Vadithala, 2022;Vogl, 2023;Danila, 2022;Gómez-Águila et al, 2022;Metescu, 2022;Takaishi, 2022).…”

Exploring the Multidimensional Perspective of Retail Investors’ Attention: The Mediating Influence of Corporate Governance and Information Disclosure on Corporate Environmental Performance in China

“…Previous research has primarily concentrated on asset pricing and announcement effects [16,17], and it is recognized that investor attention is limited [18,19]. Due to the high costs associated with gathering and processing stock data, retail investors cannot access all available information [20].…”

“…Due to the high costs associated with gathering and processing stock data, retail investors cannot access all available information [20]. However, when they take an interest in a company, they can acquire more knowledge about it [17]. Retail investors' efforts to obtain and analyze information can exert considerable pressure on companies to improve their information-sharing quality [21,22].…”

“…Meanwhile, through mechanism analysis, it elucidates the rationality of external supervision mechanisms generated by investors' attention. Most studies focus on the capital market reactions caused by investor attention, such as the impact on stock returns and market risk [16,17,37]. Fewer studies conduct in-depth empirical analysis and theoretical explanations of the decision-making behaviors of listed companies triggered by investor attention [38].…”

Impact Investing: Determinants of External Financing of Social Enterprises in Brazil

“…The investment raised is essential for SEs to improve the social impact generated [18]. We choose as a research context Brazil, one of the largest emerging economies in the world, bringing great opportunities for investors who care about social and environmental issues [19]. However, understanding the conditions that foster impact investing in these contexts is lacking.…”