Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness
Research output: Journal contributions › Journal articles › Research
Standard
In: Energy Economics, Vol. 123, 106729, 01.07.2023.
Research output: Journal contributions › Journal articles › Research
Harvard
APA
Vancouver
Bibtex
}
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 -