Investor sentiments and performance of selected ESG indices in BRICS markets during bull and bear conditions

Abstract

Sustainability concerns are increasingly shaping global investment decisions, prioritising sustainable impacts over mere profit-making. This study examines the performance of Environmental, Social, and Governance (ESG) funds in emerging markets, focusing on bull and bear market scenarios. A Markov Regime Switching model was employed to analyse daily price data from BRICS (Brazil, Russia, India, China, and South Africa) ESG market indices spanning from 31 January 2011 to 2 January 2023. The analysis highlights the variability of ESG returns performance across different market conditions, emphasising the need for tailored investment strategies that account for market dynamics. Additionally, patterns in ESG returns and volatility are identified, along with pairwise relationships among ESG markets within the emerging markets bloc. The study also examines the influence of investor sentiments on ESG performance and controlled for the influence of macroeconomic factors on ESG performance amid changing market conditions. Finally, insights into transition probabilities between bullish and bearish market conditions offer guidance for more resilient investment portfolio management. This research contributes to advancing empirical knowledge on ESG investing in emerging markets, emphasising the significance of investor sentiments and market conditions for sustainable investment practices and long-term financial success.