TEADUSSEMINAR
Kolmapäev, 15. juuni 2022 kell 11.00
M. Hakan Eratalay (University of Tartu), kaasautorid Hashem Zarafat, Sascha Liebhardt
On the impact of ESG ratings on asymmetric effects and leverage effects in volatility
In this paper, we explore the impact of ESG ratings on the asymmetric effects and leverage effects behavior in volatility. Asymmetric effects is the stylized fact that the volatility increases as a response to a negative shock more compared to a positive shock of the same magnitude. Leverage effects refers to the negative correlation between current return shocks and future volatility shocks. For this analysis we use the returns data on the constituent stocks of S&P Europe 350 for the period January 2016 - December 2021. We also use the financial performance ratios and ESG ratings of the companies. Our analysis starts with fitting autoregressive moving average models for the conditional means and asymmetric GARCH models for the conditional variances. Afterwards we use the asymmetry coefficients as estimated dependent variables in the fixed effects regressions to estimate the impact of ESG ratings, controlling for the market betas and solvency ratios. The control variables are chosen specifically to proxy the volatility feedback and firm leverage, which are the two main sources of the asymmetry behavior of volatility according to the literature.