Title: Tail dependence and ESG scores: An empirical investigation
Authors: Karoline Bax - University of Trento (Italy) [presenting]
Ozge Sahin - Technical University of Munich (Germany)
Claudia Czado - Technische Universitaet Muenchen (Germany)
Sandra Paterlini - University of Trento (Italy)
Abstract: Growths in environmental, social, and governance (ESG) trading activity has reinforced the volatility in the global financial market. Over the last two decades, increases in market globalization have intensified the asymmetric dependence among international equity markets and a new paradigm of investment has altered the landscape for financial practitioners. Consequently, asset managers and regulators called for more diligent risk management and sparked a search for additional risk factors. This research aims to question whether ESG scores can be used as tail-risk measures and aid in financial risk assessments. It does so, by analyzing the tail dependence structure of companies with a range of ESG scores using high-dimensional copula modeling and Value-at-Risk (VaR) calculations. Empirical findings on real-world data will be discussed.