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

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Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness. / Basse, Tobias; Karmani, Majdi; Rjiba, Hatem et al.
In: Energy Economics, Vol. 123, 106729, 01.07.2023.

Research output: Journal contributionsJournal articlesResearch

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Basse T, Karmani M, Rjiba H, Wegener C. Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness. Energy Economics. 2023 Jul 1;123:106729. Epub 2023 May 16. doi: 10.1016/j.eneco.2023.106729

Bibtex

@article{24beb0ecc6714e4980480f2455a2ee83,
title = "Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness",
abstract = "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.",
keywords = "Carbon finance, Bubbles, Co-explosiveness, Economics",
author = "Tobias Basse and Majdi Karmani and Hatem Rjiba and Christoph Wegener",
note = "Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",
year = "2023",
month = jul,
day = "1",
doi = "10.1016/j.eneco.2023.106729",
language = "English",
volume = "123",
journal = "Energy Economics",
issn = "0140-9883",
publisher = "Elsevier B.V.",

}

RIS

TY - JOUR

T1 - Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness

AU - Basse, Tobias

AU - Karmani, Majdi

AU - Rjiba, Hatem

AU - Wegener, Christoph

N1 - Publisher Copyright: © 2023 Elsevier B.V.

PY - 2023/7/1

Y1 - 2023/7/1

N2 - 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.

AB - 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.

KW - Carbon finance

KW - Bubbles

KW - Co-explosiveness

KW - Economics

UR - http://www.scopus.com/inward/record.url?scp=85160417404&partnerID=8YFLogxK

U2 - 10.1016/j.eneco.2023.106729

DO - 10.1016/j.eneco.2023.106729

M3 - Journal articles

VL - 123

JO - Energy Economics

JF - Energy Economics

SN - 0140-9883

M1 - 106729

ER -