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Peer-reviewedCC BY 4.0PLOS One

The effects on investor sentiment and business cycles on the systematic risk of an ESG portfolio

  • Edgardo Cayon1
  • Ravi Shukla2
  1. 1EGADE Business School, Tecnologico de Monterrey, Mexico City, Mexico
  2. 2Syracuse University, Whitman School of Management, Syracuse, New York, United States of America
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Abstract

In this study, we analyze the time varying nature of the systematic risk of an ESG portfolio to common sources of systematic risk. We model the conditional covariances and variances of different sources of systematic risk such as the world stock index, risk aversion as a proxy for investment sentiment (fear), and changes in interest rates. Afterwards, we test for sources of transmission of volatility to ESG systematic risk by controlling for different stages of the business cycle and rising interest rates. Our main finding is that investment sentiment (fear) is not a statistically significant source of systematic risk to the ESG portfolio in the expansion phases of the business cycle but becomes highly relevant in the trough and recession phases and during periods of rising interest rates.

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Cite

BibTeXRIS
BibTeX
@article{cayon2026effects,
  title = {{The effects on investor sentiment and business cycles on the systematic risk of an ESG portfolio}},
  author = {Edgardo Cayon and Ravi Shukla},
  journal = {PLOS One},
  year = {2026},
  month = nov,
  doi = {10.1371/journal.pone.0341348},
  url = {https://doi.org/10.1371/journal.pone.0341348},
  note = {CC BY 4.0},
}
RIS
TY  - JOUR
TI  - The effects on investor sentiment and business cycles on the systematic risk of an ESG portfolio
AU  - Edgardo Cayon
AU  - Ravi Shukla
PY  - 2026
DA  - 2026/11/05
JO  - PLOS One
DO  - 10.1371/journal.pone.0341348
UR  - https://doi.org/10.1371/journal.pone.0341348
AB  - In this study, we analyze the time varying nature of the systematic risk of an ESG portfolio to common sources of systematic risk. We model the conditional covariances and variances of different sources of systematic risk such as the world stock index, risk aversion as a proxy for investment sentiment (fear), and changes in interest rates. Afterwards, we test for sources of transmission of volatility to ESG systematic risk by controlling for different stages of the business cycle and rising interest rates. Our main finding is that investment sentiment (fear) is not a statistically significant source of systematic risk to the ESG portfolio in the expansion phases of the business cycle but becomes highly relevant in the trough and recession phases and during periods of rising interest rates.
SN  - 1932-6203
ER  -