Dynamic linkage between environmental segments of stock markets: the role of global risk factors

Abstract

This study evaluates the links between representative indices of companies with high environmental performance and the propensity of such indices to economic and financial shocks. Five indices, representing environmental segments and four global macroeconomic and financial variables, were analyzed over a thirteen-year period, which included various crisis moments, such as the sovereign debt crisis, the COVID-19 pandemic and the onset of the Russia/Ukraine conflict. Using dynamic and nonlinear models, our research reveals statistically significant and consistent relationships between the variables under investigation, particularly during periods of global financial and pandemic crises. The analysis revealed that the VIXCLS is the most influential global risk factor, with certain risk factors being influenced by environmental segments, particularly Alternative Energy. This influence can create conditions conducive to contagion risk and diminish the benefits of portfolio diversification. This study contributes to a deeper understanding of the connection between environmental investments and their vulnerability to significant global events and risks.