Connections between ESG and systemic risk based on dynamic stock return connectedness in the US




ESG, systemic risk, risk management, connectednes


In this study, the number and direction of dynamic return connections have been analysed within and between portfolios with different ESG (Environmental, Social, Governance) scores to determine their exposure to systemic risk. The number of significant pairwise Granger causality connections were counted between 2012 and 2019 on the portfolios of NASDAQ and NYSE using one-year, weekly rolling windows. According to the results of the current empirical research, the return of high ESG portfolios determines the return of low ESG portfolios. Low ESG performers are also more interconnected than companies with high ESG scores and thus more exposed to systemic risk; this low-ESG interconnectedness accelerates further as market volatility increases. Overall, investors can reduce exposure to systemic risk by applying a responsible mindset to their investment decisions. Application of the methods and findings of this study could be integrated into the regulatory risk management and portfolio diversification practices of individual or institutional asset managers.


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Author Biography

Martin Márkus, Corvinus University of Budapest

PhD student


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How to Cite

Márkus, M. (2024). Connections between ESG and systemic risk based on dynamic stock return connectedness in the US. Vezetéstudomány Budapest Management Review, 55(1), 16–26.