Multivariate volatility in environmental finance

There exist several important benchmark indices in environmental finance, some computed by wellknown financial index providers such as the Dow Jones group or the FTSE group, and others by independent agencies specializing in environmental and ethical issues in finance. The main feature of these sustainability indices is that they are constructed from a selection of financial stocks according to sustainable economic, environmental, social and ethical criteria. The resulting sustainability indices are meant to be representative of the diversity of industries and size of firms in the market, at the national, regional and international level. This paper builds on earlier empirical work investigating conditional volatility or risk inherent in two major financial time-series indices featuring ethical and environmental screening. Moreover, the trends and volatility of two prominent financial indexes, namely DJIA and S&P500, are analysed in the same manner to provide a comparison of the time series performance of the two types of indexes. We examine symmetric and asymmetric effects of shocks at the multivariate level, and we investigate the presence and the importance of multivariate effects in conditional volatility in each of these indices as a way to analyse their relative inherent risk. We further investigate empirically the existence of risk spillovers across these four indexes.