Іmpact of the COVID-19 pandemic on the stock market: the ESG ETF case
Abstract
The article is devoted to the analysis of the impact of the financial shock caused by the COVID-19 pandemic. As interest in responsible investing has declined in recent years, and a recent survey found that 75% of respondents worldwide integrate ESG into their investment approach, the study focused on the shock response processes of thirty ETF ESG companies, which are among the most important investment tools. ESG can be deciphered as "environment, social policy and corporate governance". In a broad sense, it is a sustainable development of business, based on the following principles: responsible attitude to the environment (from English, E - environment), ie how active the company is in the field of environmental protection; high social responsibility (from English, S - social). Businesses must provide employees with decent working conditions and equal employment opportunities, as well as support public organizations; high quality of corporate governance (from English, G - governance). These are the standards that guide business management, including ethical business practices, gender diversity on the board of directors, appropriate pay, and general business transparency. Also in this article, an analysis of investment risk and risk-return during the shock period of the COVID-19 pandemic. Three-time intervals were used for the study, namely: before the shock (lasted from 01.07.2019 to 15.01.2020), shock (from 16.01.2020 to 31.03.2020) and after the shock (from 01.04.2020 to 31.10.2021) periods. Two indicators have been proposed for the study: the depth of the decline and the recovery rate of return on financial assets. Almost all of the studied indicators showed a fairly good recovery at selected intervals. Risk-to-return ratios in the pre-shock and post-shock periods are considered using two approaches: volatility and Value-at-Risk. In the post-shock period, both approaches show an increased risk, but their degree varies.
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ESG investments are taking over the world. What is it and why are they getting more and more popular? (2021) https://investfunds.ru/news/77835/ 07/19/2021.
McKinsey&Company. COVID-19: Implications for business. https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business
Carlsson-Szlezak P., Swartz P., and Reeves M. Why The Global Economy Is Recovering Faster Than Expected. Harvard Business Review, 11/03/2020. https://hbr.org/2020/11/why-the-global-economy-is-recovering-faster-than-expected
Sharma, D., Bouchaud, J. P., Gualdi, S., Tarzia, M., & Zamponi, F. (2021). V–, U–, L–or W–shaped economic recovery after Covid-19: Insights from an Agent-Based Model. PloS one, 16(3), e0247823.
Szegö, G. P. (Ed.). (2004). Risk measures for the 21st century (Vol. 1). New York: Wiley.
Kaminskyi, A., Motoryn, R., & Pysanets, K. (2019). Investment risks and their measurement. Probability in Action. – V3, 103-114
Fischer, T. (2003). Risk capital allocation by coherent risk measures based on one-sided moments. Insurance: Mathematics and Economics, 32(1), 135-146.
Scott, R. C., & Horvath, P. A. (1980). On the direction of preference for moments of a higher order than the variance. The Journal of Finance, 35(4), 915-919.
Holton, G. A. (2003). Value-at-risk. Acad. press.
Economic Policy Uncertainty Index. https://www.policyuncertainty.com/ 12/25/2020.
Baker, S. R., Bloom, N., Davis, S. J., & Terry, S. J. (2020). Covid-induced economic uncertainty (No. w26983). National Bureau of Economic Research.
Investing.com (2020) https://www.investing.com/ 12/27/2020.
Girard, M. (2020). The 5 shapes of coronavirus economic recovery – which will it be. https://ci.natwest.com/insights/articles/the-5-shapes-of-coronavirus-economic-recovery-and-why-our-base-case-is-a-swoosh/ 01/12/2021.
Just, M., & Echaust, K. (2020). Stock market returns, volatility, correlation and liquidity during the COVID-19 crisis: Evidence from the Markov switching approach. Finance Research Letters, 37, 101775.
Kaminskyi, A., Nehrey, M., Rizun, N. (2020). The impact of COVID-induced shock on the risk-return correspondence of agricultural ETFs. Machine Learning for Prediction of Emergent Economy Dynamics 2020. Proceedings of the Selected Papers of the Special Edition of International Conference on Monitoring, Modeling & Management of Emergent Economy (M3E2-MLPEED 2020), Vol. 2713, 204-218.
Narayan, M. (2020). 3 key investment trends for a post-COVID world. https://www.refinitiv.com/perspectives/future-of-investing-trading/3-key-investment-trends-for-a-post-covid-world/ 01/12/2021
Babenko, V., Panchyshyn, A., Zomchak, L., Nehrey, M., Artym-Drohomyretska, Z., Lahotskyi, T. (2021). Classical Machine Learning Methods in Economics Research: Macro and Micro Level Example. WSEAS Transactions on Business and Economics, Vol. 18, 2021, Art. #22, pp. 209-217. https://doi.org/10.37394/23207.2021.18.22
What are ESG ETFs? (2020) https://www.rbcgam.com/en/ca/learn-plan/types-of-investments/what-are-esg-etfs/detail
Babenko, V., & Nehrey, M. (2021). Complex Risk Analysis of E-Commerce Companies Related to COVID-19. In E. Mazaheri (Ed.). The Impact of COVID19 on E-Commerce, pp. 91-104. Proud Pen. https://doi.org/10.51432/978-1-8381524-8-2_7
RBC Global Asset Management, 2020 Responsible Investment Survey Key Findings https://www.rbcgam.com/documents/en/other/esg-key-findings.pdf
TD Asset Management, How to build a portfolio with ESG ETFs https://www.bnnbloomberg.ca/how-to-build-a-portfolio-with-esg-etfs-1.1559774
ESG investments are taking over the world. What is it and why are they getting more and more popular? (2021) https://investfunds.ru/news/77835/ 07/19/2021.
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