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The impact of ESG ratings on implied and historical volatility

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  • Burger, Eric
  • Grba, Fabian
  • Heidorn, Thomas

Abstract

The economic and political developments of the past years show an increasing importance of a possible risk-reducing of the company due to good ESG performance. Our work contributes by examining the impact of relatively better ESG performance of companies on their implied and historical share volatility. Our regressions show a clear relationship between the volatilities and the ESG ratings of the market-leading agencies (Bloomberg, Refinitiv, Sustainalytics and MSCI) and our combined score. A better ESG performance measured by the company's ESG rating(s) has a risk-reducing effect in the form of lower stock volatility. However, our combined rating has the strongest impact.

Suggested Citation

  • Burger, Eric & Grba, Fabian & Heidorn, Thomas, 2022. "The impact of ESG ratings on implied and historical volatility," Frankfurt School - Working Paper Series 230, Frankfurt School of Finance and Management.
    • Handle: RePEc:zbw:fsfmwp:230
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    1. Tatarnikova, Olga & Duchêne, Sébastien & Sentis, Patrick & Willinger, Marc, 2023. "Portfolio instability and socially responsible investment: Experiments with financial professionals and students," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Environmental; Social and Governance (ESG); ESG Ratings; ESG Rating Filter; Equity Volatility; Historical Volatility; Implied Volatility; Company Risk Performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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