The Dynamic Volatility Connectedness of Major Environmental, Social, and Governance (ESG) Stock Indices: Evidence Based on DCC-GARCH Model

Abstract

This study investigates the dynamic volatility connectivity of important environmental, social, and governance (ESG) stock indexes from May 2010 to March 2021. The empirical research is focused on five major S&P ESG stock indexes from the US, Latin America, Europe, the Middle East and Africa, and Asia Pacific regions. The study reveals that ESG stock indexes in the Middle East Africa, and Latin America are net shock transmitters, whereas the United States and Asia Pacific are net volatility receivers. Furthermore, the study finds that bilateral intercorrelations are higher among US, Latin America, and Europe region group pairs and weaker in relation to Middle East Africa and Asia Pacific region group pairs, indicating the presence of contagion within developed and/or emerging regions, which has relevance for portfolio and risk management.