The (possible) Imperviousness of being green: An event study in the stock markets

During the last few decades, there has been an increased level of awareness about environmental degradation. However, given the profit-seeking nature of corporates, the process of adopting green practices is often a forced one. In this study we examine the impact of information shocks on green stock returns in the Indian and U.S. markets in comparison to the benchmark market returns in the two countries. For this purpose, the respective green indices and market indices are collected for India and U.S. on a daily basis for little over two years, from January 2016 to March 2018. For India, we select BSE-GREENEX and BSE SENSEX and for the U.S., we choose the Dow Jones Sustainable Index and Dow Jones Industrial Average. The data are collected from the official websites. We identify significant events in both countries during this period, both economic and political in nature. For example, we consider events such as demonetization, implementation of goods and services tax, major elections as well as monetary policy announcements by the Reserve Bank of India and for the U.S., major Fed announcements and the presidential election, to name a few. BREXIT has been considered to be a common event in both the markets. In this study, we will examine the reaction of the green market compared to the market as a whole for such events. Our aim is two pronged. First, to identify and compare volatility dynamics and the inherent stability of the returns before and after such shocks. Second, to understand if these characteristics differ across the two markets. For the analysis, suitable models from the fractionally integrated generalized autoregressive conditional heteroskedasticity (GARCH) family are used (FIGARCH and Power ARCH). The results suggest that the green returns are inherently more stable and less reactive to major disturbances. The findings will have major policy implications. Due to the positive externalities, the amount of green investments have been underwhelming. Empirical evidence pointing towards the more stable nature of the green stocks, especially in the face of large shocks would provide the necessary impetus, the big push, towards greener investments.