IDEAS home Printed from https://ideas.repec.org/a/bbl/journl/v26y2023i2p172-188.html
   My bibliography  Save this article

How competitive is SRI in developing financial markets: The case of Central and Eastern Europe

Author

Listed:
  • Ana Ivanisevic Hernaus

    (University of Zagreb)

  • Davor Zoricic

    (University of Zagreb)

  • Denis Dolinar

    (University of Zagreb)

Abstract

This study investigates the competitiveness of sustainable and responsible investment (SRI) in Central and Eastern European (CEE) financial markets. Specifically, we examined whether a statistically significant measurable difference in the return and volatility between an SRI index and two conventional benchmark indices in the CEE region exists. To test whether the market volatility may affect the results, we applied a Markov regime-switching model to examine the performance in high and low volatility environments. We also used the Fama-French three-factor model to analyse the potential sources of outperformance and verify the initial analysis results. The analysis covered an eleven-year period (January 2011–December 2021) and was based on monthly returns of indices available on the Vienna Stock Exchange: CECE SRI, CECE Composite and CECE MID. Our findings showed that the SRI phenomenon in developing financial markets of the CEE countries followed performance patterns similar to ones in developed financial markets. Sustainable and responsible investment is competitive with conventional investment in the CEE region. However, the differences in returns between the SRI index and conventional benchmarks were statistically insignificant. Although a statistically significant difference in volatility between the SRI index and the large-cap CECE Composite index was reported, we did not find any evidence of exposure to the SRI factor regarding the analysed returns of the CECE SRI index. Our analysis of SRI returns pointed to the statistical significance of the common risk factors, such as the market and the size, which is similar to the analysed conventional benchmarks, with alpha not being statistically significant.

Suggested Citation

  • Ana Ivanisevic Hernaus & Davor Zoricic & Denis Dolinar, 2023. "How competitive is SRI in developing financial markets: The case of Central and Eastern Europe," E&M Economics and Management, Technical University of Liberec, Faculty of Economics, vol. 26(2), pages 172-188, June.
    • Handle: RePEc:bbl:journl:v:26:y:2023:i:2:p:172-188
    DOI: 10.15240/tul/001/2023-2-011
    as

    Download full text from publisher

    File URL: https://doi.org/10.15240/tul/001/2023-2-011
    Download Restriction: no
    File URL: https://libkey.io/10.15240/tul/001/2023-2-011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ronald Hill & Thomas Ainscough & Todd Shank & Daryl Manullang, 2007. "Corporate Social Responsibility and Socially Responsible Investing: A Global Perspective," Journal of Business Ethics, Springer, vol. 70(2), pages 165-174, January.
    2. Humphrey, Jacquelyn E. & Lee, Darren D. & Shen, Yaokan, 2012. "Does it cost to be sustainable?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 626-639.
    3. Vanita Tripathi & Amanpreet Kaur, 2020. "Socially responsible investing: performance evaluation of BRICS nations," Journal of Advances in Management Research, Emerald Group Publishing Limited, vol. 17(4), pages 525-547, June.
    4. repec:eme:mfppss:mf-06-2016-0164 is not listed on IDEAS
    5. Vanita Tripathi & Amanpreet Kaur, 2020. "Socially responsible investing: performance evaluation of BRICS nations," Journal of Advances in Management Research, Emerald Group Publishing Limited, vol. 17(4), pages 525-547, June.
    6. Mario La Torre & Fabiomassimo Mango & Arturo Cafaro & Sabrina Leo, 2020. "Does the ESG Index Affect Stock Return? Evidence from the Eurostoxx50," Sustainability, MDPI, vol. 12(16), pages 1-12, August.
    7. Janusz Brzeszczyński & Binam Ghimire & Tooraj Jamasb & Graham McIntosh, 2019. "Socially Responsible Investment and Market Performance: The Case of Energy and Resource Companies," The Energy Journal, , vol. 40(5), pages 17-72, September.
    8. Pieter Jan Trinks & Bert Scholtens, 2017. "The Opportunity Cost of Negative Screening in Socially Responsible Investing," Journal of Business Ethics, Springer, vol. 140(2), pages 193-208, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ved Dilip Beloskar & Arunima Haldar & S. V. D. Nageswara Rao, 2023. "Socially responsible investments: A retrospective review and future research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4841-4860, November.
    2. Rabi Narayan Kar & Amanpreet Kaur, 2023. "Do Disclosures Drive Socially Responsible Investing?," Paradigm, , vol. 27(1), pages 7-26, June.
    3. Ferrat, Yann & Daty, Frédéric & Burlacu, Radu, 2022. "Does a sustainability risk premium exist where it matters the most?," Emerging Markets Review, Elsevier, vol. 53(C).
    4. Janusz Brzeszczyński & Graham McIntosh, 2014. "Performance of Portfolios Composed of British SRI Stocks," Journal of Business Ethics, Springer, vol. 120(3), pages 335-362, March.
    5. Vanita Tripathi & Amanpreet Kaur, 2022. "Does Socially Responsible Investing Pay in Developing Countries? A Comparative Study Across Select Developed and Developing Markets," FIIB Business Review, , vol. 11(2), pages 189-205, June.
    6. Dirk Brounen & Gianluca Marcato & Hans Op ’t Veld, 2021. "Pricing ESG Equity Ratings and Underlying Data in Listed Real Estate Securities," Sustainability, MDPI, vol. 13(4), pages 1-20, February.
    7. Federica Ielasi & Monica Rossolini, 2019. "Responsible or Thematic? The True Nature of Sustainability-Themed Mutual Funds," Sustainability, MDPI, vol. 11(12), pages 1-17, June.
    8. Pablo Durán-Santomil & Luis Otero-González & Renato Heitor Correia-Domingues & Juan Carlos Reboredo, 2019. "Does Sustainability Score Impact Mutual Fund Performance?," Sustainability, MDPI, vol. 11(10), pages 1-17, May.
    9. Lei Ruan & Heng Liu, 2021. "Environmental, Social, Governance Activities and Firm Performance: Evidence from China," Sustainability, MDPI, vol. 13(2), pages 1-16, January.
    10. María del Mar Miralles-Quirós & José Luis Miralles-Quirós, 2017. "Improving Diversification Opportunities for Socially Responsible Investors," Journal of Business Ethics, Springer, vol. 140(2), pages 339-351, January.
    11. Youngkyung Ok & Jungmu Kim, 2019. "Which Corporate Social Responsibility Performance Affects the Cost of Equity? Evidence from Korea," Sustainability, MDPI, vol. 11(10), pages 1-14, May.
    12. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    13. Iqbal Owadally & Jean-René Mwizere & Neema Kalidas & Kalyanie Murugesu & Muhammad Kashif, 2021. "Long-Term Sustainable Investment for Retirement," Sustainability, MDPI, vol. 13(9), pages 1-22, April.
    14. Andrew Ainsworth & Adam Corbett & Steve Satchell, 2018. "Psychic dividends of socially responsible investment portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 19(3), pages 179-190, May.
    15. Federica Ielasi & Paolo Ceccherini & Pietro Zito, 2020. "Integrating ESG Analysis into Smart Beta Strategies," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    16. Carmen Valor & Marta de la Cuesta & Beatriz Fernandez, 2009. "Understanding demand for retail socially responsible investments: a survey of individual investors and financial consultants," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 16(1), pages 1-14, January.
    17. Joliet, Robert & Titova, Yulia, 2018. "Equity SRI funds vacillate between ethics and money: An analysis of the funds’ stock holding decisions," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 70-86.
    18. Caroline Flammer & Michael W. Toffel & Kala Viswanathan, 2021. "Shareholder activism and firms' voluntary disclosure of climate change risks," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1850-1879, October.
    19. Luo, Di & Farag, Hisham, 2024. "ESG and aggregate disagreement," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    20. Massimiliano Cerciello & Francesco Busato & Simone Taddeo, 2023. "The effect of sustainable business practices on profitability. Accounting for strategic disclosure," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 802-819, March.

    More about this item

    Keywords

    Sustainable and responsible investment (SRI); performance analysis; risk factor exposures; Central and Eastern Europe (CEE); regime-switching;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bbl:journl:v:26:y:2023:i:2:p:172-188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vendula Pospisilova (email available below). General contact details of provider: https://edirc.repec.org/data/hflibcz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.