Revisiting the Index Effect: Evidence from ESG Index Additions and Deletions

Sammanfattning

This thesis investigates whether inclusion in or exclusion from an ESG screened index causes abnormal stock returns and abnormal trading volume following the event. It examines if firms experience an increase in trading volume after being added to the MSCI Choice ESG Screened Indices and a decrease in trading volume after deletion. To do this, the study applies an event study methodology, similar to Chen, Noronha and Singal (2004), comparing actual returns after the announcement and rebalancing with expected returns estimated using the CAPM model and comparing actual trading volume with a benchmark volume. While we find no significant impact on returns for either stock additions to or deletions from an ESG index, we do find that there is an increase in trading activity around the time when the change in constituents is implemented. This thesis contributes to the research on the index effect by expanding this to include a growing body of indices with sustainability focus, filling a current gap in the existing literature.