Investors' reaction to the introduction of new ESG indexes: evidence from an event study approach

Abstract

The intention behind this contribution is to explore how the market, particularly investors, reacts to the reinforcement announcement of the MASI-ESG index using event study methodology. The study is conducted over two years, running from January 2, 2022, to December 31, 2023. It includes 21 days, 10 days before the announcement of five new additions to the MASI-ESG index on January 24, 2023, and extends for 10 days following that date. It focuses on how environmental scores affect stock prices in the short term. The conclusions of this paper indicate that investors exhibit a very short-term reaction immediately after the announcement of the event under investigation, showcasing abnormal returns observed at various dates within the selected timeframe. The same observation goes against the semi-strong form of the efficient market hypothesis if we consider the test carried out in this research as an appropriate tool to assess its validity. The study also emphasizes the importance of adopting long-term perspectives to understand the true impact on stock prices, analyzing synergies and their influence on the financial health of constituent companies.