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Demystifying the dynamic relationship between news sentiment index and ESG stocks: Evidence from time-frequency wavelet analysis

Author

Listed:
  • Yousaf, Imran
  • Bejaoui, Azza
  • Ali, Shoaib
  • Li, Yanshuang

Abstract

Using the Time-Frequency Wavelet Analysis, this study investigates the dynamic connectedness between the News Sentiment Index (NSI) and ESG leader indices of developed countries. The empirical findings clearly show nontrivial dynamic comovements between NSI and the ESG indices and the existence of the ESG market volatility in different frequency scales. We also report some discrepancies in cross-linkage patterns among different countries. In particular, such associations for some countries (e.g., Australia and the United Kingdom) are negative, with the leading role of the ESG index against market risk due to high fluctuations in sentiments. These findings suggest that ESG stocks possess potential hedging and diversifying features and safe-haven attributes against market risk driven by negative sentiment during the outbreak of Black Swan events. Our empirical results have insightful implications for investors, portfolio managers, and policymakers.

Suggested Citation

  • Yousaf, Imran & Bejaoui, Azza & Ali, Shoaib & Li, Yanshuang, 2024. "Demystifying the dynamic relationship between news sentiment index and ESG stocks: Evidence from time-frequency wavelet analysis," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006306
    DOI: 10.1016/j.irfa.2024.103698
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    Keywords

    News sentiment index; ESG stocks; Wavelet coherence; Lead-lag relationships; Hedging;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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