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Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs)

Author

Listed:
  • John Francis T. Diaz

    (Asian Institute of Management, Makati, Philippines)

  • Michael N. Young

    (Mapua Institute of Technology, Manila, Philippines)

  • Yogi Tri Prasetyo

    (Yuan Ze University, Taoyuan, Taiwan, China)

Abstract

This study compares return and volatility performance of exchange-traded funds (ETFs) with high-ESG (Environment, Social, and Governance) rating vs. low-ESG rating. The paper also examines time-series data predictability by identifying their positive dependence and volatility asymmetry properties, and examines the performance of two combinations of short-memory models i.e., autoregressive moving average and exponential generalized autoregressive conditional heteroskedasticity (ARMA-EGARCH); autoregressive moving average and asymmetric power autoregressive conditional heteroskedasticity (ARMA-APARCH) and two long-memory models, autoregressive moving average and fractionally integrated exponential generalized autoregressive conditional heteroskedasticity (ARFIMA-FIGARCH); and autoregressive fractionally-integrated moving average and asymmetric power autoregressive conditional heteroskedasticity (ARFIMA-APARCH). The study found that low-ESG rating ETFs on average have slightly significant higher returns and also lower volatility compared to their high-ESG rating counterparts. Evidence of asymmetric volatility properties are also present on both high-ESG and low-ESG rating ETFs returns. The study also observed that for both high-ESG and low-ESG rating ETFs denote a stationarity, but non-invertible process in their returns. Results can provide fresh understanding in the topic of leverage effects and volatility that can open future research channels to academicians.

Suggested Citation

  • John Francis T. Diaz & Michael N. Young & Yogi Tri Prasetyo, 2024. "Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs)," Financial Economics Letters, Anser Press, vol. 3(2), pages 55-75, June.
  • Handle: RePEc:bba:j00007:v:3:y:2024:i:2:p:55-75:d:347
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    References listed on IDEAS

    as
    1. Kang, Sang Hoon & Yoon, Seong-Min, 2007. "Long memory properties in return and volatility: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(2), pages 591-600.
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