The Effects of Environmental Announcements on Exchange Traded Funds

ABSTRACT

We investigate the impact of environmental announcements on Exchange Traded Funds (ETFs) constituted of either polluting or green firms for the period 2006 to 2014. Using an event study methodology, we examine whether these public environmental announcements add or remove value for ETF investors. Our results identify that few environmental announcements produce statistically significant abnormal returns. For the significant announcements, we find mixed results for both polluting and green ETFs. Our findings indicate that environmental announcements are only partially effective in transmitting information to industries sensitive to the news incorporated in these announcements. We also show that, at times, these announcements can cause large abnormal returns over longer horizons.

KEY WORDS:

• abnormal returns
• event study
• exchange traded funds
• green

Notes

^1. It should be noted that in many cases the ETF’s benchmark is non-tradable, as it is created with the specific purpose of allowing the performance of the ETF to be measured against it.

^2. ETFs pay out ‘distributions’ obtained from their constituent stocks dividends to ETF holders at regular intervals throughout a year. As such these distributions are synonymous with dividends from stocks.

^3. Some ETF’s AUM may, for some part of our sample period have AUM less than the US$10 million.

^4. We thank a referee for pointing out this possibility to us.

^5. Note that the 24 significant announcements related only to the abnormal returns. If the 2-day cumulative abnormal returns are included in this analysis a total of 49 significant announcements would be observed, the same as the reported number of announcements.

^6. These results are available upon request from the authors.