Title: Investor reactions to sustainability index dynamics: asymmetries from the Asian market perspectives

Author (s):: Jain, D., Kumar, A., & Jindal, K.

Journal: Journal of Economic Studies

Month and Year: February 2025

Abstract: Purpose With the rise of stakeholders' activism, integrating sustainability into business practices has become increasingly crucial for businesses. For such stakeholders, recognition from global sustainability indexes such as Dow Jones Sustainability Indexes (DJSI) allows them to evaluate organizations based on sustainable integration. Further, it helps companies influence their investors' opinions and investment decisions. In this light, this study examines the stock market response to the inclusion and exclusion of Asian companies in the Dow Jones Sustainability World Index (DJSI World) and the Dow Jones Sustainability Index Emerging Markets (DJSI EM). Design/methodology/approach The study has employed the event study methodology to understand the intermediate and immediate abnormal reaction of the inclusion and exclusion event from the DJSI World and DJSI EM indexes from September 30, 2012, to November 30, 2023. Findings Findings show that changes in the DJSI indexes have asymmetric reactions in different markets. The reaction to changes in DJSI indexes is more pronounced for DJSI EM than DJSI World. Inclusion in DJSI World showed mixed reactions, while exclusion typically resulted in adverse reactions around the event day. Inclusion in DJSI EM generated a positive reaction, while exclusion had a mixed reaction. The study found no significant difference in the intermediate reaction of inclusion/exclusion between DJSI World and DJSI EM. Additionally, investors' immediate reactions from developing versus developed countries differed, but the reaction variation disappeared in the whole event window. Originality/value With a considerable increase in sustainable practices in Asia, companies must determine whether investors recognize and reward the company’s sustainability efforts. No other study has previously investigated the impact on Asian companies that are rapidly rising in global sustainability rankings. Furthermore, no study has examined the comparative reaction of inclusion or exclusion in two independent sustainability indices – DJSI WORLD and DJSI EM.

Document Type: Article

DOI: https://doi.org/10.1108/JES-11-2024-0750