Uncertainty shocks, investor sentiment and environmental performance: Novel evidence from a PVAR approach

This paper contributes to the ongoing literature on the relationship between uncertainty, investor sentiment, and environmental performance in three different ways. First, we applied the Global Malmquist-Luenberger productivity index (GMLPI) within a Slacks-Based Measure-Directional Distance Function (SBMDDF) framework with both desirable and undesirable outputs to construct our environmental performance indicator. Secondly, we use the Panel Vector Autoregression (PVAR) model in a Generalized Method of Moments (GMM) framework and Impulse Response Functions (IRFs) to quantify the dynamic causal relationship between investor sentiment, World Uncertainty Index (WUI), Financial Stress Index (FSI), Geopolitical Risk (GPR), and environmental performance. Thirdly, a novel panel, the Granger Non-causality technique, proposed by Juodis et al. (2021), is used to investigate the bi-directional relationship among these variables. From both models, our results demonstrate that WUI, FSI, and GPR shock impact differently on environmental performance. Second, for investor sentiment, CCI shocks only negatively affect environmental performance in the short term.