Abstract
This paper examines the effect of various economic and financial indicators on the Dow Jones Sustainability Index (DJSI) returns. In particular, four explanatory variables are employed, namely United States (US) 10 Year bond value, gold price, Trade Weighted U.S. Dollar Index and Consumer Sentiment Index calculated by Michigan University. A generalized autoregressive conditional heteroskedasticity (GARCH) model is applied over DJSI United States which incorporates socially responsible companies for the period August, 1999 to May, 2016 using monthly data. The empirical results indicate that the consumer sentiment and the bond market exert positive impact on the DJSI US, whereas the gold and currency market affects it negatively. In addition, the structural analysis of DJSI US returns volatility showed that the US trade balance has a stabilizing effect on the conditional variance of the DJSI US return series. JEL Classification: G1, F2, Q40, M21. Keywords: Dow Jones Sustainability Index, bond value, gold, exchange rate, consumer sentiment
Highlights
A significant number of studies has been devoted to investigate the relationship between stock returns and a range economic indicators and variables across different stock markets (e.g., Chen et al, 1986; Cheung and Ng, 1998; Arouri and Nguyen, 2010; Atanasov, 2016)
The relationship between interest rates and stock prices is negative, a fact that is attributed to many reasons with the most important one the impact of interest rates in the present values of stocks, as it is calculated through the cash flow discounting model
The coefficient of consumer sentiment (CSI) is statistically significant at 1% level (p value = 0.074) suggested the vital gravity of the consumer’s sentiment on the mean return of the DJSIUS variable
Summary
A significant number of studies has been devoted to investigate the relationship between stock returns and a range economic indicators and variables across different stock markets (e.g., Chen et al, 1986; Cheung and Ng, 1998; Arouri and Nguyen, 2010; Atanasov, 2016). Chen et al (1986) incorporated a number of the US macroeconomic variables as proxies for the systematic risk factors that determine the stock returns. Business operations by incorporating companies that both integrate and implement socially responsible initiatives For this reason, US companies listed on Dow Jones Sustainability Index (DJSI) are considered in order to detect socially responsible companies as its analysis is based on corporate economic, environmental and social performance. US companies listed on Dow Jones Sustainability Index (DJSI) are considered in order to detect socially responsible companies as its analysis is based on corporate economic, environmental and social performance Investments on this type of companies, which attract the interest of investors, are known as Socially Responsible Investments (SRI). The interest rate was selected as determinant of stock index returns because it is a crucial variable both for firms and investors as it can affect loan interest and principal payments formulating the future cash flow of firms (Hyde, 2007)
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