Tuesday, September 29 @ 11:00 - 12:30 PM (ONLINE)
The Anatomy of Sustainability
Ola Mahmoud, University of Basel
ABSTRACT: We present evidence that sustainability is inextricably linked with market-implied uncertainty. We derive an econometric decomposition of sustainability ratings yielding three orthogonal components capturing uncertainty, investor sentiment, and an idiosyncratic sustainability factor. Examining the shock of the COVID-19 pandemic to the US stock market in light of these explanatory factors, we show that the perceived immunity of sustainable stocks during the crash is principally driven through the uncertainty channel, significantly more so than through the idiosyncratic factor. Once controlling for uncertainty and firm fundamentals, the positive relationship between idiosyncratic sustainability and resilience persists, albeit weakly.