Dow Jones sustainability index transmission to oil stock market returns: A GARCH approach

Several studies hypothetically assume that investors are increasingly using socio-environmental criteria to configure their portfolios. If this is true, oil companies should strive to achieve an environmentally correct image, especially by adhering to sustainability indexes in the capital market. If not, oil companies' stock prices are still not affected by sustainability indexes. Therefore, this study analyzes the impact on the market value of a chosen group of oil companies that adhered to the Dow Jones Sustainability Index (DJSI World). It evaluates the variations in three indicators: a) the systemic risk of the chosen companies (beta), b) the sensitivity of their stock prices in relation to variations in crude oil prices, and c) the conditional variance of their stock prices (volatility). Findings of our analysis indicate that the betas of only two of the firms declined due to participation in the DJSI, and there was no change in volatility or association with the oil price for any of the firms. Therefore, there is still no consolidated positive impact - or at least not a statistically proven one - between adoption of a proactive environmental posture by oil companies, reflected by adhesion to the DJSI, and their stock prices. (C) 2012 Elsevier Ltd. All rights reserved.