Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness

Publikation: Beiträge in ZeitschriftenZeitschriftenaufsätzeForschung


We use a test for co-explosiveness to improve our understanding of the effects of green finance on the valuation of stocks. First, by testing against temporary explosiveness in the MVIS Global Coal Index, the NASDAQ OMX Green Economy Index, and the MSCI World Equity Index, we find evidence for explosive periods in the latter two time series. Second, we use a recently proposed econometric procedure to test for co-explosivity of the jointly explosive variables, i.e., the NASDAQ OMX Green Economy Index and the MSCI World Equity Index. The test results indicate co-explosive behavior. The MVIS Global Coal Index, on the other hand, shows completely different time series properties. Assuming that there is no speculative bubble, the theory of corporate finance suggests that this empirical finding should be a result of differences with regard to risk premia demanded by investors buying the respective stocks and (respectively or) expected future corporate earnings of the firms examined here. More specifically, the existence of higher risk premia and pessimistic expectations regarding future corporate earnings should suggest that investors are looking at the business models of firms that are included in the MVIS Global Coal Index with at least a certain degree of skepticism. Thus, our results imply that not adhering to the principles of green finance perhaps might be more important for the stock market valuation of firms than adhering to it.
ZeitschriftEnergy Economics
PublikationsstatusErschienen - 01.07.2023

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We consider further the autocorrelation function of the estimated residuals in Fig. 2. Although these continue to indicate high persistence, the degree of persistence is significantly lower than for the underlying time series (see Fig. 1), providing additional support for our conclusion that MSCI World Equity Index and NASDAQ OMX Green Economy Index share a common explosive trend.

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