Socially responsible and green investment options are gaining notable attention from multiple stakeholders, including individual investors and the government, across both developing and developed markets. The purpose of this study is to examine whether the three recently launched socially responsible indices of India, an emerging market, follow the martingale process. This study also explores the impact of market-wide uncertainty on the market efficiency of these indices.
Using a set of robust parametric and nonparametric tests, including the spectral analysis, the periodogram and the Fisher’s G test, the authors comment upon the market efficiency of Carbonex, Greenex and the environmental, social and governance indices, both in general and during periods of high uncertainty marked by the COVID-19 pandemic.
The results of this study confirm the presence of market inefficiency in socially responsible investments (SRI), both in general and during the COVID-19 crisis in the Indian context.
The results of this study have implications for investors as well as policymakers. Investors, speculators and arbitrageurs may devise profitable trading strategies by using these results. Asset managers and fund houses may use the benefits of reduced volatility of SRI to balance their portfolios and improve asset allocation; regulators and policymakers to strengthen the framework as market inefficiencies reduce investor confidence and hinder capital formation.
To the best of the authors’ knowledge, this is the first study to explore the market efficiency of multiple SRIs, which were previously unexplored Indian markets, and also the first to comment upon the behavior of SRIs during market-wide uncertainty.
