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1497. Corporate Sustainability Committment and marker risk
Invited abstract in session TA-63: Models for Financial Data and Risk Management, stream OR in Banking, Finance and Insurance: New Tools for Risk Management.
Tuesday, 8:30-10:00Room: S14 (building: 101)
Authors (first author is the speaker)
| 1. | Rita D'Ecclesia
|
| Statistics, Sapienza University of Rome | |
| 2. | Kevyn Stefanelli
|
| Economic and Social Sciences, Sapienza | |
| 3. | Susanna Levantesi
|
| Sapienza University of Rome |
Abstract
The impact of Environmental Social and Governance (ESG) factors on the performance of financial stocks are still controversial in the literature. We aim to identify groups of companies according to their ESG temporal dynamics to evaluate whether their fluctuations impact the market risk
factors. We assess a potential relationship between financial and non- financial risks within the Fama and French framework (Fama and French, 2015) according to the ESG score and its components.
We discriminate companies that increase their ESG compliance using a hierarchical time-series clustering approach and computing the similarity between two-time series by Euclidean distance and Dynamic Time Warping (DTW). The latter is useful when the time series have differen shifts and speeds. We compare four hierarchical methods with different linkage criteria (average, complete, Ward.D, Ward.D2). The optimal number of clusters is selected based on 4 cluster validity indices
(Silhouette, Calinski-Harabasz, Clustering Order Preservation, and Dunn). The data utilized in this paper refer to the S&P500 and come from the Re nitiv database. The CVIs indicate two clusters as the best choice. However, while the Euclidian distance with the average method is the best combination for the ESG score and its components E and S, the DTW distance with the ward.D method is the best for the G score. Overall, we fi nd different effects on the market risk, which depend on the ESG component
Keywords
- Financial Modelling
- Environmental Management
- OR in Sustainability
Status: accepted
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