Can capital markets respond to environmental policy of firms? Evidence from Greece

In this study we attempt to evaluate the stock value of Greek firms, which apply systems of environmental management in the light of systemic risk. Risk is examined empirically with the help of conditional volatility models of investment in environmental friendly firms. The empirical analysis relies on financial econometric models, which deter-mine the underlying conditional volatility. We find that improved environmental management system and environmental performance result in reductions in firms' beta. Specifically, our empirical estimates show evidence of volatility clustering, short- and long-run persistence of shocks to the returns of the market and asymmetry in the leverage effect between negative and positive shocks to returns. Finally, the macroeconomic factors proposed and included in the analysis have no statistical significant influence on the beta estimates in almost all cases. (c) 2007 Elsevier B.V. All rights reserved.