Investor sentiment and its differential impact on sustainable finance markets:,A GARCH-MIDAS approach

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🔬研究者:Provides empirical evidence on sentiment-driven volatility heterogeneity across sustainable finance instruments, useful for further research on market design and behavioral finance.

🏢実務担当者:Highlights the need to monitor sentiment indicators for renewable energy investments and to rely on regulatory stability for carbon market exposure.

🏛政策担当者:Emphasizes that credible and predictable regulation can stabilize carbon markets, while renewable energy markets may require measures to manage sentiment-driven volatility.

This study examines the influence of investor sentiment on volatility in sustainable finance markets, focusing on carbon and renewable energy instruments across major market segments. While prior research has documented spillovers, integration, and financialisation in green markets, limited attention has been given to how behavioural forces shape volatility differently across institutional contexts. Using a GARCH-MIDAS framework, the analysis separates short-run market fluctuations from long-run sentiment-driven volatility, allowing an assessment of the persistence, magnitude, and transmission of behavioural effects. Empirical results reveal pronounced heterogeneity across markets. Compliance-based carbon markets, represented by the European Union Emissions Trading System and the Regional Greenhouse Gas Initiative, exhibit persistent volatility but relatively muted responses to investor sentiment, reflecting the stabilising role of regulatory frameworks and policy credibility. In contrast, equity-driven renewable energy indices, including the WilderHill Clean Energy Index and the S&P Global Clean Energy Index, display lower immediate volatility but stronger and more persistent sentiment-driven effects, consistent with sensitivity to investor expectations, capital flows, and growth narratives. These findings carry practical and policy implications. Investors and portfolio managers should monitor sentiment indicators to anticipate sustained volatility in renewable energy markets, while policymakers can enhance stability in carbon markets through credible and predictable regulation. By highlighting the differential influence of behavioural forces across heterogeneous sustainable finance instruments, the study contributes to energy economics literature and advances understanding of how institutional design interacts with investor behaviour to shape risk during the transition to a low-carbon economy.

• openaire https://doi.org/10.2139/ssrn.6955542first seen 2026-08-04 04:44:53