How Does the Market Value Sustainability?: Evidence from the Dow Jones Sustainability Europe Index
Lehti, Jenna (2020-10-30)
Lehti, Jenna
30.10.2020
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020103088857
https://urn.fi/URN:NBN:fi-fe2020103088857
Tiivistelmä
Socially responsible investing (SRI) is a growing trend among investors as could be told from the assets under management that have grown remarkably in last decades. Companies are increasingly paying attention to their sustainability actions covering environmental, social and governance (ESG) issues too. The purpose of this thesis is to examine how does the market value sustainability by examining the impact of stock inclusion in (exclusion from) the Dow Jones Sustainability Europe Index. This thesis aims to contribute to the existing literature by providing more recent results from European markets.
The sample includes in total 124 inclusions and 125 exclusions during the research period of 2013–2018. For every year of examination, two sample portfolios are formed based on components lists of the DJSEI published by RobecoSAM to investigate the effects of additions and deletions separately. To capture the impact of the event, event study methodology is used to discover whether there are cumulative average abnormal returns (CAARs) detected during the event window. The 28-days-long event window is set to cover not only the exact event day but also the days around it to make it possible to capture additional information related to prices. The event window is divided into five sub- periods; pre-announcement period, announcement day, post announcement period, effective day and post-effective period. The theoretical part of the thesis covers efficient market hypothesis and several stock valuation models, as they are closely associated with the event study methodology.
According to previous literature, it is not uncommon that the returns around index inclusion (exclusion) announcements are insignificant. However, usually at least some of the examined sub-periods have provided statistically significant results in the previous studies. The findings of this thesis are insignificant for all of the examinations made, providing evidence in support of null hypothesis stating that the markets do not react on stock inclusion in nor exclusion from the DJSEI over the time period of 2013–2018.
The sample includes in total 124 inclusions and 125 exclusions during the research period of 2013–2018. For every year of examination, two sample portfolios are formed based on components lists of the DJSEI published by RobecoSAM to investigate the effects of additions and deletions separately. To capture the impact of the event, event study methodology is used to discover whether there are cumulative average abnormal returns (CAARs) detected during the event window. The 28-days-long event window is set to cover not only the exact event day but also the days around it to make it possible to capture additional information related to prices. The event window is divided into five sub- periods; pre-announcement period, announcement day, post announcement period, effective day and post-effective period. The theoretical part of the thesis covers efficient market hypothesis and several stock valuation models, as they are closely associated with the event study methodology.
According to previous literature, it is not uncommon that the returns around index inclusion (exclusion) announcements are insignificant. However, usually at least some of the examined sub-periods have provided statistically significant results in the previous studies. The findings of this thesis are insignificant for all of the examinations made, providing evidence in support of null hypothesis stating that the markets do not react on stock inclusion in nor exclusion from the DJSEI over the time period of 2013–2018.