Abstract
Purpose This study aims to analyse whether investment in green and sustainable stocks provide some cushion during current precarious time. To compare the impact of COVID-19 on the volatility of sustainable and market-capitalisation-based stocks, daily returns from Greenex, Carbonex, Large-Cap, Mid-Cap and Small-Cap index have been analysed over a period of six years from 2015 to 2021. Design/methodology/approach At the outset, logarithmic return of all selected indices has been tested for possible unit root and heteroscedastic. On confirmation of stationarity and heteroscedasticity of data, auto-regressive conditional heteroscedastic models have been applied. Thereafter, volatility is modelled through best suitable model as suggested by Akaike and Schwarz information criterions. Findings The findings indicate the positive impact of COVID-19 on the volatility of the indices. Asymmetric power ARCH model indicates highest significant impact of COVID-19 over the volatility of Large-Cap index, whereas exponential GARCH model detected highest significant impact of COVID-19 over the volatility of Mid-Cap Index. Originality/value To the best of the authors’ knowledge, the present study is original in the sense that it aimed at comparing the possible impact of COVID-19 over sustainable and market-capitalisation-based indices.
Highlights
According to efficient market hypothesis, the stock markets around the world are sensitive to news in the market
Almost all stock markets reacted to the occurrence of any bad news in the market, no matter whether these shocks are directly related with financial world or have any indirect influence over the same
As results indicate heteroscedasticity of returns, volatility has been measured through four prominent auto-regressive conditional Heteroscedastic (ARCH) models, which can be briefly stated as under (Karmakar, 2006; Srivastava, 2008; Joshi, 2010; Ortas et al, 2010; Bhattacharya, 2013; Yousef, 2020): 1. Generalised auto-regressive conditional heteroscedasticity (GARCH) model: It is proposed by Bollerslev (1986) and applies both an autoregressive and moving average structure to the variance: s 2t 1⁄4
Summary
According to efficient market hypothesis, the stock markets around the world are sensitive to news in the market. Almost all stock markets reacted to the occurrence of any bad news in the market, no matter whether these shocks are directly related with financial world or have any indirect influence over the same. Recent studies evidence that not just global financial crisis led to market oscillations but the outbreak of contagious diseases such as severe acute respiratory syndrome (SARS) and H1N1 increased the stock market volatility (Mun and Brooks, 2012; Peckham, 2013; Jin and An, 2016). The outbreak of the COVID-19 affected the health of the people and devastated the financial markets and business houses. The financial markets became highly volatile globally since December 2019 due to the outbreak of COVID-19 (Zhang et al, 2020; Ozili and Arun, 2020; Estrada and Lee, 2020). During the turbulent phase of financial crisis, researchers (Tripathi and Bhandari, 2012; Aggarwal, 2014) observed that green and sustainable stocks were comparatively stable and outperformed in comparison to other portfolios
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