Market efficiency of traditional stock market indices and social responsible indices: the role of sustainability reporting
-
DOIhttp://dx.doi.org/10.21511/imfi.14(2).2017.09
-
Article InfoVolume 14 2017, Issue #2, pp. 94-106
- Cited by
- 1585 Views
-
628 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
Corporate social responsibility, disclosed in sustainability reporting, influences the financial performance of companies. As a result, traditional stock market indices (TI) are expanded with the social responsible stock market indices (SRI). The aim of this study was to establish whether there are any differences in the behavior of the TI and SRI. To do this, the authors analyzed their efficiency. They used R/S analysis to calculate the Hurst exponent as a measure of persistence (long-term memory property). The presence of persistence was evidence in favor of less efficiency. According to empirical results, SRI has lower efficiency, in particular the Dow Jones Sustainability Index. Lower efficiency was also observed in the emerging markets with a responsible investment segment, compared to the traditional stock market indices. Further standardization and a common methodological approach to corporate sustainability reporting disclosure are proposed.
- Keywords
-
JEL Classification (Paper profile tab)G02, G14, M41
-
References43
-
Tables6
-
Figures0
-
- Table 1. Indices of sustainable development and the corresponding financial indices studied by the authors
- Table 2. Overall results of the Hurst exponent calculations for the Dow Jones Sustainability Indices and traditional Dow Jones Industrial Index
- Table 3. Overall results of the Hurst exponent calculations for the S&P500 Environmental & Socially Responsible Index and traditional S&P500 Index
- Table 4. Overall results of the Hurst exponent calculations for the FTSE4Good Global Index and traditional FTSE 100 Index
- Table 5. Overall results of the Hurst exponent calculations for the MSCI ESG Indices, NASDAQ OMX CRD Global Sustainability Index and their traditional analogues (MSCI Index and NASDAQ Composite Index)
- Table 6. Behavior of sustainability and traditional indices during pre-crisis, crisis and post-crisis periods: case of global financial crisis
-
- Albaity, M., & Ahmad, R. (2011). Return performance and leverage effect in Islamic and socially responsible stock indices evi¬dence from Dow Jones (DJ) and Financial Times Stock Exchange (FTSE). African Journal of Business Management, 5(16), 6927-6939.
- Ameur, H. B., & Senanedsch, J. (2014). Socially responsible invest¬ments: An international empirical study of time-varying risk premiums. Journal of Applied Business Research, 30(5), 1513-1523.
- Belghitar, Y., Ephraim, C., & Nitin, D. (2014). Does it pay to be ethical? Evidence from the FTSE4Good. Journal of Banking and Finance, 47(C), 54-62.
- Cajueiro, D., & Tabak, B. (2005). Ranking efficiency for emerging equity markets II. Chaos Solitons Fractals, 23, 671-675.
- Caporale, G. M., Gil-Alana, L., Plastun, A., & Makarenko, I. (2016). Long memory in the Ukrainian stock market and financial crises. Journal of Economics and Finance, 40(2), 235-257.
- Cheung, Y., & Lai, K. (1993). Do gold market returns have long-range dependence? The Financial Review, 28(2), 181-202.
- Cheung, Y. W., Lai, K. S. (1995). A search for long-range dependence in international stock market returns. Journal of International Money and Finance, 14(4), 597-615.
- Collison, D., Cobb, G., Power, D., & Stevenson, L. (2009). FTSE4Good: Exploring its implications for corporate conduct. Accounting, Auditing & Accountability Journal, 22(1), 35-58.
- Corazza, M., & Malliaris, A. (2002). Multifractality in foreign currency markets. Multinational Finance Journal, 6, 387-401.
- Cortez, M., Silva, F., & Areal, N. (2009). Socially responsible investing in the global market: The performance of US and European funds.
- Costa, R. L., Vasconcelos, G. L. (2003). Long-range correlations and nonstationarity in the Brazilian stock market. Physica A, 329, 231-248.
- Di Bartolomeo, D., & Kurtz, L. (2012). The long-term performance of a social investment universe. The Journal of Investing, 20(3), 95-102.
- Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York Times Magazine, 32-33.
- Glenn, L. A. (2007). On randomness and the NASDAQ composite. Working paper.
- Global Reporting Initiative. (2011). Sustainability reporting guidelines.
- Gray, R. (2006). Does sustainability reporting improve corporate behaviour? Wrong question? Right time? Accounting and Business Research, 36, Suppl. 1, 65-88.
- Grech, D., & Pamula, G. (2008). The local Hurst exponent of the financial time series in the vicinity of crashes on the Polish stock exchange market. Physica A, 387(16/17), 4299-4308.
- Greene, M. T., & Fielitz, B. D. (1977). Long-term dependence in common stock returns. Journal of Financial Economy, 4, 339-349.
- Hayati, K., Sedaghat P. (2016). An evaluation of the links between quality of reporting and efficiency of investment in companies listed at Tehran Stock Exchange. Problems and Perspectives in Management, 14(2(spec. issue)), 341-347.
- Hoti, S., McAleer, M., & Pauwels, L. L. (2008). Multivariate volatility in environmental finance. Mathematics and Computers in Simulation, 78(2), 189-199.
- Jacobsen, B. (1995). Are stock returns long-term dependent? Some empirical evidence. Journal of International Financial Markets. Institutions and Money, 5(2/3), 37-52.
- KPMG. (2011). The KPMG Survey of Corporate Responsibility Reporting 2011.
- KPMG. (2013). The KPMG Survey of Corporate Responsibility Reporting 2013.
- KPMG. (2015). Survey of Corporate Responsibility Reporting 2015.
- Lapinskiene, G. (2011). Sustainable enterprises: Responses of market values. Business Systems and Economics, 1(1), 71-83.
- Lo, A. W. (1991). Long-term memory in stock market prices. Econometrica, 59, 1279-1313.
- Lopez, M. V., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones Sustainability Index. Journal of Business Ethics, 75(3), 285-300.
- Los, C. (2003). Financial market risk: Measurement and analysis. Routledge International Studies in Money and Banking, Vol. 24. London: Taylor and Francis.
- Los, C., Yalamova, R. M. (2006) Multi-Fractal Spectral Analysis of the 1987 Stock Market Crash. International Research Journal of Finance and Economics, 1(4), 106-133.
- Managi, S., Okimoto, T., & Matsuda, A. (2012). Do socially responsible investment indexes outperform conventional indexes? Applied Financial Economics, 22(18), 1511-1527.
- Mandelbrot, B. (1972). Statistical methodology for nonperiodic cycles: From the covariance to R/S analysis. Annals of Economic and Social Measurement, 1, 259-290.
- Murray, A., Sinclair, C. D., Power, D., & Gray, R. (2006). Do financial markets care about social and environmental disclosure? Further evidence and exploration from the UK. Accounting, Auditing and Accountability Journal, 19(2), 228-255.
- Mynhardt, R. H., Plastun, A., & Makarenko, I. (2014). Behavior of financial markets efficiency during the financial market crisis: 2007–2009. Corporate Ownership and Control, 11(2), 473-488.
- OECD. (2014). The Evolution of Corporate Reporting for Integrated Performance.
- Onali, E., & Goddard, J. (2011). Are European equity markets efficient? New evidence from fractal analysis. International Review of Financial Analysis, 20(2), 59-67.
- Opler, T. C., & Sokobin, J. (1995). Does coordinated institutional activism work. Dice Center For Research In Financial Economics, Working Papers Series 95-5.
- Peters, E. E. (1991). Chaos and order in the capital markets: A new view of cycles, prices, and market volatility. New York, NY: Wiley.
- Peters, E. E. (1994). Fractal market analysis: Applying chaos theory to investment and economics. New York, NY: Wiley.
- Schröder, M. (2007). Is there a difference? The performance characteristics of SRI equity indices. Journal of Business Finance and Accounting, 34(1/2), 331-348.
- Smit, A. M., Zyl, J. (2016) Investigating the extent of sustainability reporting in the banking industry. Banks and Bank Systems, 11(4), 71-81.
- Statman, M. (2000, May/June). Socially responsible mutual funds. Financial Analysts Journal, 30-39.
- Statman, M., & Glushkov, D. (2008). The wages of social responsibility. Santa Clara University.
- Velte, P. (2016) Sustainable management compensation and ESG performance – the German case. Problems and Perspectives in Management, 14(4), 17-24.