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Twitter Economic Uncertainty and Herding Behavior in ESG Markets

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  • Dimitrios Koutmos

    (Department of Accounting, Finance, and Business Law, College of Business, Texas A&M University—Corpus Christi, Corpus Christi, TX 78412, USA
    Finance Area, Academic Alliance, Texas A&M University System—RELLIS Technology & Innovation Campus, College Station, TX 77843, USA)

Abstract

Attention to environmental, social, and governance (ESG) investing has grown in recent years. Even after the SARS-CoV-2 (COVID-19) global pandemic, there has been a rise in financial instruments that are structured according to certain prescribed “sustainable finance” objectives. From a risk management perspective, and as we continue to see a rise in inflows into such instruments, it is important to appreciate that ESG markets will have a growing influence on our financial system and its development. In light of this, and using a sample of some of the most common and popular US-based ESG index funds, this study explores the extent to which herding behaviors are present in such markets. From a regulatory point of view, such behaviors are important to identify, given that they can lead to excess price volatility, bubbles, and other such market-destabilizing phenomena. In addition, this study builds a framework for exploring whether Twitter-based economic uncertainty, which is arguably a forward-looking indicator of investors’ expectations, can exacerbate herding behaviors in ESG markets. Overall, this study shows the following: (i) herding behaviors are present in ESG markets; (ii) rises in Twitter economic uncertainty can potentially exacerbate such herding; (iii) although ESG funds, like traditional asset classes, generally show a negative risk–return tradeoff, this can be driven by changes in Twitter economic uncertainty.

Suggested Citation

  • Dimitrios Koutmos, 2024. "Twitter Economic Uncertainty and Herding Behavior in ESG Markets," JRFM, MDPI, vol. 17(11), pages 1-19, November.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:11:p:502-:d:1516484
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    References listed on IDEAS

    as
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    6. Emil Andersson & Mahim Hoque & Md Lutfur Rahman & Gazi Salah Uddin & Ranadeva Jayasekera, 2022. "ESG investment: What do we learn from its interaction with stock, currency and commodity markets?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3623-3639, July.
    7. Barroso, Pedro & Maio, Paulo, 2024. "The risk–return tradeoff among equity factors," Journal of Empirical Finance, Elsevier, vol. 78(C).
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