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<p>As there is a growing concern for the environment and increase in demand for the corporate accountability, sustainability has emerged as an important aspect in investment decisions. This can further be used to explore mean reversion that exists in the financial market. The study examines the link between sustainability and mean reversion in the indices. The indices from BSE and NSE are taken for this purpose from the year 2011 to 2024. The occurrence of mean reversion is tested for the ESG indices in comparison to its conventional counterparts. Variance ratio and Hurst exponent along with root test is used to test the behaviour of reversion. The results of GARCH are included for robustness of the test. The results indicate that both ESG and traditional indices exhibit evidence of mean reversion behaviour. Variance ratio rejects random walk hypothesis. The value of Hurst Exponent is lower than 0.5 for ESG indices. BSE 100 does not exhibit the presence of the phenomenon. The period of half-life for BSE 100 ESG is 37 days and 46 days for NSE 100 ESG. The study provides a comparative comprehensive assessment for ESG and conventional indices. It suggests that integrating ESG factors into investment strategies will not only align with ethical considerations, but it will also improve market stability. The results are beneficial for investors and portfolio managers as it highlights the benefits of sustainable investing and encourages to adopt it in the financial markets. It bridges the concept of mean reversion and sustainability by empirically comparing the behavior of ESG indices with traditional indices in Indian financial market.</p>

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Mean reversion dynamics in ESG and conventional indices: evidence from advanced analytical techniques

  • 期刊论文

  • 发表日期：

    2026年7月17日

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  • Shifa Hasan,
  • Renu Ghosh,
  • Pankaj Kumar Gupta

摘要

As there is a growing concern for the environment and increase in demand for the corporate accountability, sustainability has emerged as an important aspect in investment decisions. This can further be used to explore mean reversion that exists in the financial market. The study examines the link between sustainability and mean reversion in the indices. The indices from BSE and NSE are taken for this purpose from the year 2011 to 2024. The occurrence of mean reversion is tested for the ESG indices in comparison to its conventional counterparts. Variance ratio and Hurst exponent along with root test is used to test the behaviour of reversion. The results of GARCH are included for robustness of the test. The results indicate that both ESG and traditional indices exhibit evidence of mean reversion behaviour. Variance ratio rejects random walk hypothesis. The value of Hurst Exponent is lower than 0.5 for ESG indices. BSE 100 does not exhibit the presence of the phenomenon. The period of half-life for BSE 100 ESG is 37 days and 46 days for NSE 100 ESG. The study provides a comparative comprehensive assessment for ESG and conventional indices. It suggests that integrating ESG factors into investment strategies will not only align with ethical considerations, but it will also improve market stability. The results are beneficial for investors and portfolio managers as it highlights the benefits of sustainable investing and encourages to adopt it in the financial markets. It bridges the concept of mean reversion and sustainability by empirically comparing the behavior of ESG indices with traditional indices in Indian financial market.