TY - JOUR
T1 - The integration of conventional equity indices with environmental, social, and governance indices
T2 - Evidence from emerging economies
AU - Rehman, Ramiz Ur
AU - Abidin, Muhammad Zain Ul
AU - Ali, Rizwan
AU - Nor, Safwan Mohd
AU - Naseem, Muhammad Akram
AU - Hasan, Mudassar
AU - Ahmad, Muhammad Ishfaq
N1 - Funding information: The APC was funded by RHB Islamic Endowed Scholar in Finance research grant (vote: 53276). The authors are grateful to RHB Islamic Bank Berhad for the financial support.
PY - 2021/1/12
Y1 - 2021/1/12
N2 - This study investigates the integration of environmental, social, and governance (ESG) equity indices with conventional indices in Brazil, Russia, India, China, and South Africa (BRICS) individually and across all BRICS countries to better understand regional economic cooperation. Accordingly, we look at daily returns from 13 July 2013 to 28 February 2018 for the Morgan Stanley Capital International (MSCI) ESG indices and MSCI composite indices of the respective countries. To analyze the integration between the ESG equity indices of the sampled countries with their regional and across regional conventional counterparts, the Johansen Co-integration test is employed in this study. Further, the vector error correction model (VECM) is applied to test the causality between the sampled time-series. The impulse response function analysis further explains the impulse responses of each country’s MSCI ESG returns to one standard deviation of innovations to MSCI composite returns of the same country and across countries. Finally, the extent of the MSCI composite returns’ impact on the MSCI ESG returns in the same country indices, and cross-regional indices is examined with variance decomposition analysis. The results suggest that all ESG equity indices are integrated with conventional indices in all BRICS countries. Furthermore, there is a short-or long-run causality between MSCI ESG and MSCI composite equity indices of China and South Africa. Moreover, the study finds only short-run causality between conventional and non-conventional equity indices of Brazil and Russia, whereas we find only long-run causality between India’s non-conventional and conventional equity indices. Finally, the study finds that the all-individual country MSCI ESG equity indices shows a long-run causality with MSCI composite equity indices of all other BRICS countries. The findings also confirm the economic and financial cooperation between the BRICS countries.
AB - This study investigates the integration of environmental, social, and governance (ESG) equity indices with conventional indices in Brazil, Russia, India, China, and South Africa (BRICS) individually and across all BRICS countries to better understand regional economic cooperation. Accordingly, we look at daily returns from 13 July 2013 to 28 February 2018 for the Morgan Stanley Capital International (MSCI) ESG indices and MSCI composite indices of the respective countries. To analyze the integration between the ESG equity indices of the sampled countries with their regional and across regional conventional counterparts, the Johansen Co-integration test is employed in this study. Further, the vector error correction model (VECM) is applied to test the causality between the sampled time-series. The impulse response function analysis further explains the impulse responses of each country’s MSCI ESG returns to one standard deviation of innovations to MSCI composite returns of the same country and across countries. Finally, the extent of the MSCI composite returns’ impact on the MSCI ESG returns in the same country indices, and cross-regional indices is examined with variance decomposition analysis. The results suggest that all ESG equity indices are integrated with conventional indices in all BRICS countries. Furthermore, there is a short-or long-run causality between MSCI ESG and MSCI composite equity indices of China and South Africa. Moreover, the study finds only short-run causality between conventional and non-conventional equity indices of Brazil and Russia, whereas we find only long-run causality between India’s non-conventional and conventional equity indices. Finally, the study finds that the all-individual country MSCI ESG equity indices shows a long-run causality with MSCI composite equity indices of all other BRICS countries. The findings also confirm the economic and financial cooperation between the BRICS countries.
KW - Brazil
KW - BRICS
KW - China
KW - Cointegration analysis
KW - Environmental
KW - Equity indices
KW - ESG
KW - Governance
KW - Impulse response function
KW - India
KW - MSCI
KW - Russia
KW - Social
KW - South Africa
KW - Variance decomposition
KW - VECM
UR - http://www.scopus.com/inward/record.url?scp=85100209531&partnerID=8YFLogxK
U2 - 10.3390/su13020676
DO - 10.3390/su13020676
M3 - Article
AN - SCOPUS:85100209531
SN - 2071-1050
VL - 13
SP - 1
EP - 27
JO - Sustainability (Switzerland)
JF - Sustainability (Switzerland)
IS - 2
M1 - 676
ER -
