Revealing stock liquidity determinants by means of explainable AI: The role of ESG before and during the COVID-19 pandemic

Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?

“…In addition, Thomson Reuters Refinitiv provided yearly data on net-debt-to-EBITDA ratios, ROAs, interest coverage ratios, ROEs, operating margin ratios, the ratios of market capitalization to net asset value (Tobin's Q), the logs of market capitalization and revenue, and the levels of revenue growth (%, year to year). Many authors (e.g., Teplova et al 2023), who studied the relationships between ESG scores and different stock-specific risks, used similar sets of fundamental variables as control variables.…”

“…Based on empirical results, Teplova et al (2023) develop policy implications for countries with major environmental problems: "Improvement in ESG factors is beneficial in the long run and during the crisis periods because it can reduce company-specific risk and increase stock liquidity". Therefore, we put forward Hypothesis 2: H2: Indicators of ecological responsibility are negatively and statistically significantly associated with stock-specific measures of systematic and downside risks (beta and downside beta, respectively).…”

“…Therefore, we put forward Hypothesis 2: H2: Indicators of ecological responsibility are negatively and statistically significantly associated with stock-specific measures of systematic and downside risks (beta and downside beta, respectively). Teplova et al (2023) show that social responsibility is a factor affecting the liquidity of Russian stocks and can be considered "a "business card" of Russian public companies". Yet, the authors show that during COVID-19, social responsibility was not among the determinants of stock liquidity.…”

“…Our motivations to study the role of ESG for risk in the Russian stock market are as follows. It is a large emerging market characterized by a high share of minerals extraction in GDP, export-oriented economics, slow economic growth (the average annual real GDP growth in 2013-2023 was 1.2%), high inflation in recent years, and several serious environmental problems such as the "depletion of natural resources, air and water pollution, large amount of household waste" (Teplova et al 2023). Therefore, environmental and social responsibility issues and the quality of corporate governance are essential for studying risk determinants.…”

“…Third, we analyze the influence of the COVID-19 pandemic and use regressions with multiplicative variables to reveal changes in the impact of ESG scores during the pandemic. COVID-19 led to the disruption of supply chains, social isolation, increasing panic, and the growth of the share of retail investors in domestic stock markets (Teplova et al 2023).…”