Information flow between BRVM and ESG stock returns: A frequency-dependent analysis

Abstract

This paper seeks to analyze the information flow between the Bourse Régionale des Valeurs Mobilières (BRVM) and Environmental, Social, and Governance (ESG) stocks, focusing on the time and frequency domains. By studying these aspects, we aim to gain a deeper understanding of how information is transmitted between BRVM and ESG stocks, shedding light on the dynamics and interactions within this context. The study analyzes the decomposed daily returns of four indices: BRVM Composite Index (BRVMCI), BRVM 10 Index (BRVM10), FTSE/JSE SA All Share Index (FTSEJSE), and FTSE/JSE Top 30 Responsible Investment Index (FTSERI). We employed Rényi transfer entropy estimates to measure the information flow between the stocks returns.To ensure the robustness of the findings, the study also utilizes the Dynamic Conditional Co-variance-Generalized autoregressive Conditional Heteroscedasticity (DCC-GARCH) method. The study covers the period from June 23, 2014, to April 22, 2022. The results showed positive information flow but a mixture of significant and insignificant transfer entropies. The decomposed findings give evidence to reject the null hypothesis of no information flow in the short-and medium-terms but not in the longterm.The exchange of seemingly insignificant information among stocks presents opportunities for fund managers to diversify their portfolios across various time frames.To expedite economic growth and lower equity costs, institutional leaders should collaborate with governments to establish economic and political foundations that integrate markets. Such integration would yield benefits for both markets, but the BRVM stands to gain more due to its less developed and illiquid nature.

Keywords

• Information Flow
• Bourse Regionale des Valeurs Mobilieres
• Environmental
• Social, and Governance
• Johannesburg Stock Exchange
• Rényi transfer entropy