A0289
Title: ESG controversies and market recovery: A wavelet perspective
Authors: Michaela Kiermeier - University of Applied Sciences Darmstadt (Germany) [presenting]
Abstract: Capital-market reactions to ESG controversies can be explained by various models, e.g., signaling, institutional legitimacy, and capital market inefficiencies. Together, these perspectives suggest that scandals around environmental, social, or governance may trigger short-run underperformance that can revert into longer-term recovery once effective countermeasures are perceived. To test this empirically, wavelet analysis is applied to trace how information on ESG controversies affects the financial performance of investment strategies for publicly listed European firms. Event windows are defined by controversial signals from the news. Expected returns are modeled using the best-fitting multifactor risk models for each company; abnormal returns are then computed around each event. Maximal overlap discrete wavelet transforms decompose these abnormal returns across multiple time scales, allowing the identification of transient versus persistent effects. A bootstrap procedure generates scale-specific thresholds so that only statistically significant wavelet coefficients are retained, ensuring robust inference about the duration and magnitude of ESG impacts. By combining a theoretically grounded view of controversy resolution with a scale-by-scale time-frequency approach, it is illuminated whether, when, and for how long ESG information is priced, offering new insights into the temporal transmission mechanisms between corporate responsibility shocks and asset prices.
