Open Access Journal Article

Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs)

by John Francis T. Diaz a,* ,  Michael N. Young b  and  Yogi Tri Prasetyo c
a
Asian Institute of Management, Makati, Philippines
b
Mapua Institute of Technology, Manila, Philippines
c
Yuan Ze University, Taoyuan, Taiwan, China
*
Author to whom correspondence should be addressed.
FEL  2024 3(2):30; https://doi.org/10.58567/fel03020005
Received: 31 January 2024 / Accepted: 22 April 2024 / Published Online: 19 August 2024
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Abstract

This study compares return and volatility performance of exchange-traded funds (ETFs) with high-ESG (Environment, Social, and Governance) rating vs. low-ESG rating. The paper also examines time-series data predictability by identifying their positive dependence and volatility asymmetry properties, and examines the performance of two combinations of short-memory models i.e., autoregressive moving average and exponential generalized autoregressive conditional heteroskedasticity (ARMA-EGARCH); autoregressive moving average and asymmetric power autoregressive conditional heteroskedasticity (ARMA-APARCH) and two long-memory models, autoregressive moving average and fractionally integrated exponential generalized autoregressive conditional heteroskedasticity (ARFIMA-FIGARCH); and autoregressive fractionally-integrated moving average and asymmetric power autoregressive conditional heteroskedasticity (ARFIMA-APARCH). The study found that low-ESG rating ETFs on average have slightly significant higher returns and also lower volatility compared to their high-ESG rating counterparts. Evidence of asymmetric volatility properties are also present on both high-ESG and low-ESG rating ETFs returns. The study also observed that for both high-ESG and low-ESG rating ETFs denote a stationarity, but non-invertible process in their returns. Results can provide fresh understanding in the topic of leverage effects and volatility that can open future research channels to academicians.

Keywords: High-ESG and low-ESG rating ETFs; volatility clustering; asymmetric volatility;
Copyright: © 2024 by Diaz, Young and Prasetyo. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Diaz, J. F. T.; Young, M. N.; Prasetyo, Y. T. Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs). Financial Economics Letters, 2024, 3, 30. https://doi.org/10.58567/fel03020005
AMA Style
Diaz J F T, Young M N, Prasetyo Y T. Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs). Financial Economics Letters; 2024, 3(2):30. https://doi.org/10.58567/fel03020005
Chicago/Turabian Style
Diaz, John F. T.; Young, Michael N.; Prasetyo, Yogi T. 2024. "Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs)" Financial Economics Letters 3, no.2:30. https://doi.org/10.58567/fel03020005
APA style
Diaz, J. F. T., Young, M. N., & Prasetyo, Y. T. (2024). Return and Volatility Properties Comparison of High-ESG Rating and Low-ESG Rating Exchange-traded Funds (ETFs). Financial Economics Letters, 3(2), 30. https://doi.org/10.58567/fel03020005

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