Bitcoin Prices on the Volatility of Environmental, Social and Governance (ESG) Indices

Abstract

Cryptocurrencies have exploded in popularity since the launch of Bitcoin in 2009 and are collectively worth over $1 trillion. Despite its prevalence, the impact of Bitcoin on traditional financial markets and its influence on other asset classes, such as Environmental, Social, and Governance (ESG) indices, remains unexplored. The current paper focuses on determining the impact of bitcoin prices on the volatility of ESG indices. We use data from the Dow Jones Sustainability Indices family, such as DJSI World (DW), DJSI North America (DNA), DJSI Europe (DE), DJSI Asia Pacific (DAP), and DJSI Emerging Market (DEM). Data was collected for the period from 2012 to 2023. The CBOE market volatility index (VIX) is included to increase the scope of our study. For estimation purposes, Westerlund & Narayan's (2015, 2012) distributed lag model was used to explore the relationship between the realized volatility of ESG index and bitcoin prices. Results indicate that bitcoin prices have no interconnectedness with ESG indices volatility. Further, the correlation between the volatility index (VIX) and ESG indices reveals a negative relationship, strengthening model findings. The bitcoin market is modest; however, ECG indices cover a wide range of industries and sectors, leaving it less vulnerable than the bitcoin market. The findings provide empirical bases to the investors for optimal portfolio allocation. 

Received: 5 May 2024 / Accepted: 22 August 2024 / Published: 05 September 2024