Unraveling the relationship between betas and ESG scores through the Random Forests methodology

This research employs the Random Forests methodology to identify the relationship between the betas and 13 variables of financial and non-financial nature for the stocks listed in the S&P 500 index throughout the period 2015–2019. Our findings reveal according to the Relative Importance criterio...

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Bibliographic Details
Published in:Risk management (Leicestershire, England) England), 2023-09, Vol.25 (3), p.18, Article 18
Main Authors: Martín-Cervantes, Pedro Antonio, Valls Martínez, María del Carmen
Format: Article
Language:English
Subjects:
Capital assets
Economics
Economics and Finance
Finance
Heterogeneity
Investments
Literature reviews
Methodology
Original Article
REITs
Research methodology
Risk Management
Stock exchanges
Variables
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Summary:This research employs the Random Forests methodology to identify the relationship between the betas and 13 variables of financial and non-financial nature for the stocks listed in the S&P 500 index throughout the period 2015–2019. Our findings reveal according to the Relative Importance criterion that the ESG Scores constitute the main variable on the formation, determination, and sign of betas. In the same way, we verify a quasi-direct correspondence between betas and industrial sectors, finding a certain heterogeneity across the analyzed betas. The utilization of the Random Forests methodology assures the fact of obtaining relevant results since this approach inhibits the plausible correlation between the considered variables.
ISSN:1460-3799
1743-4637
DOI:10.1057/s41283-023-00121-5