A Study On Factors Affecting The Performance Of Stock Market

Abstract

In recent years, Environmental, Social, and Governance (ESG) criteria have emerged as critical determinants of financial performance, investor confidence, and risk management, especially in emerging economies. This study explores the multi-dimensional influence of ESG factors on stock market performance, focusing on a blend of macroeconomic, structural, and behavioral aspects. Leveraging a mixed-methods research design, we integrate econometric analysis—including Fama-MacBeth regression, GARCH models, and Principal Component Analysis (PCA)—with primary behavioral survey data from market participants across India, Brazil, and South Africa.

On the environmental front, carbon emissions disclosures, energy sustainability scores, and green policy adherence were measured against market index trends. The social dimension involved employee well-being, human rights compliance, and community investment, while governance was evaluated through board diversity, transparency indices, and regulatory compliance. These ESG dimensions were mapped to stock return volatility, risk-adjusted returns, and liquidity metrics.

Our survey of 120 investors and analysts reveals strong investor sentiment favoring ESG-compliant firms, even in markets characterized by historically low regulatory enforcement. Behavioral patterns such as ethical investing bias, social media influence, and perceived greenwashing risk emerged as key psychological factors driving stock selection.

The findings suggest that ESG scores have a statistically significant and economically meaningful impact on stock performance, particularly in long-term institutional portfolios. The GARCH(1,1) model shows that ESG policy shifts lead to volatility clustering, while PCA reveals that ESG risk exposure explains over 72% of the market variance in ESG-sensitive indices.

This paper contributes to a growing body of literature by offering a holistic, multi-layered ESG risk model tailored for emerging economies. It also provides practical insights for institutional investors, asset managers, and policy regulators striving to align capital flows with sustainability goals. By capturing both quantitative market data and qualitative sentiment drivers, the study sets a new benchmark for ESG-integrated financial research in developing nations