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Price Effects after One-Day Abnormal Returns in Developed and Emerging Markets: ESG versus Traditional Indices

Author

Listed:
  • Alex Plastun

    (Faculty of Economics and Management Sumy State University, Sumy, Ukraine)

  • Elie Bouri

    (Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa)

  • Qiang Ji

    (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China)

Abstract

This paper examines the price effects after one-day abnormal returns in stock markets indices of both developed and emerging while differentiating between Environmental, social, and governance (ESG) and conventional indices. Using daily data of MSCI family indices over the period 2007-2020. Using various methods to avoid methodological bias, the following hypotheses are tested: after one-day abnormal returns specific price effects (momentum/contrarian) do appear (H1) for the case of positive (H1.1) and negative (H1.2) returns; price effects after one-day abnormal returns are stronger for the case of traditional indices compared to ESG indices (H2); price effects after one-day abnormal returns are stronger during the crisis period (H3); dynamic trigger approach is more appropriate to define abnormal returns than static (H4); price effects after one-day abnormal returns are stronger for emerging markets compared to developed ones (H5). The results are mixed for the case of H1 and provide no evidence in favor of H2-H5. They do not exhibit significant differences between ESG and conventional indices. Types of detected effects are the same; in some cases, the power of the effects is different, but not significantly, and no patterns in these differences are detected. Overall, there is a strong contrarian effect in the US stock market after one-day abnormal returns. A trading strategy constructed based on this effect can generate profits from trading. The main results give additional evidence against the Efficient Market Hypothesis and provide implications that can help practitioners in beating the market.

Suggested Citation

  • Alex Plastun & Elie Bouri & Rangan Gupta & Qiang Ji, 2021. "Price Effects after One-Day Abnormal Returns in Developed and Emerging Markets: ESG versus Traditional Indices," Working Papers 202119, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202119
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    2. Dhasmana, Samriddhi & Ghosh, Sajal & Kanjilal, Kakali, 2023. "Does investor sentiment influence ESG stock performance? Evidence from India," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    3. Inova Fitri Siregar & Tubagus Ismail & Muhammad Taqi & Nurhayati Soleha, 2024. "Influence of ESG on Sustainability Reporting: Mediation Rule of Green Innovation and Investor Sentiment," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 452-463, January.

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    More about this item

    Keywords

    abnormal returns; momentum effect; contrarian effect; ESG; developed and emerging stock markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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