Does Responsible Investing Matter in Weathering Societal Panic Turbulence?

We examine how the systematic shock created by hysteria affects the volatility of responsible companies’ stock returns and how a company’s financial characteristics affect that relationship. Using daily data between January 2020 and June 2021 and the GJR-GARCH model, we demonstrate that responsible companies measured using ESG score are affected less by the systematic risk when the societal panic index rises. Further, our analysis of firm characteristics shows that this ESG effect remains unchanged regardless of company’s size, while the effect strengthens for higher financially leveraged companies.