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<p>Environmental, Social, and Governance (ESG) criteria are increasingly being integrated into investment strategies to address global sustainability challenges. This paper investigates the asymmetric impact of ESG factors on Central and Eastern European (CEE) stock markets, specifically those of Hungary, Croatia, Romania, Poland, and the Czech Republic. It explores the dynamic, quantile-based relationships between ESG and these markets using advanced techniques such as quantile-on-quantile regression and quantile-on-quantile Granger causality, based on daily data from 2019 to 2025. The findings reveal an asymmetric effect, where higher (lower) CEE stock returns amplify (diminish) the influence of ESG factors. Moreover, evidence of quantile-based causality from ESG indicators to CEE market returns across various time horizons suggests that ESG factors can significantly predict market movements. These results imply that incorporating ESG assets into portfolios yields limited diversification benefits in bullish markets but substantial gains during bearish and neutral phases. Consequently, portfolio managers and investors should adjust asset allocations according to prevailing market conditions to enhance hedging strategies, improve diversification, and mitigate risk exposure.</p>

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Quantile analysis of ESG diversification benefits in CEE stock market portfolios

  • 期刊论文

  • 发表日期：

    2025年11月3日

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  • My-Linh Thi Nguyen,
  • Ngo Thai Hung

摘要

Environmental, Social, and Governance (ESG) criteria are increasingly being integrated into investment strategies to address global sustainability challenges. This paper investigates the asymmetric impact of ESG factors on Central and Eastern European (CEE) stock markets, specifically those of Hungary, Croatia, Romania, Poland, and the Czech Republic. It explores the dynamic, quantile-based relationships between ESG and these markets using advanced techniques such as quantile-on-quantile regression and quantile-on-quantile Granger causality, based on daily data from 2019 to 2025. The findings reveal an asymmetric effect, where higher (lower) CEE stock returns amplify (diminish) the influence of ESG factors. Moreover, evidence of quantile-based causality from ESG indicators to CEE market returns across various time horizons suggests that ESG factors can significantly predict market movements. These results imply that incorporating ESG assets into portfolios yields limited diversification benefits in bullish markets but substantial gains during bearish and neutral phases. Consequently, portfolio managers and investors should adjust asset allocations according to prevailing market conditions to enhance hedging strategies, improve diversification, and mitigate risk exposure.