Exploring Market Efficiency of the S and P BSE CARBONEX: A Quantitative Study

Abstract

The Principles for Responsible Investment (PRI) emphasise the fundamental connection between adhering to ESG standards and managing investment risk effectively, revealing that non-compliant companies carry a 28 per cent higher annual risk compared to their ESG-compliant counterparts. This relationship underscores the importance of integrating sustainability practices into financial performance and aligns with the Efficient Market Hypothesis (EMH), which suggests that market information is quickly incorporated into stock prices, thereby constraining investors’ capacity to achieve superior returns. This study utilises a quantitative research approach to examine the conformity of 17 companies listed on the BSE Carbon Index with the principles of the EMH. Daily, weekly, and monthly data were collected, and statistical tools such were employed for analysis. The findings suggest a deviation from the Random Walk Hypothesis within the stock return series, leading to the rejection of the formulated hypotheses. The empirical findings challenge the applicability of the EMH within the S&P BSE CARBONEX, urging investors to consider sustainability practices in their investment decisions. These insights are pivotal for stakeholders navigating sustainability-focused investment landscapes, providing valuable guidance for aligning investment strategies with sustainability imperatives.

Keywords: S&P BSE CARBONEX, Indian Stock Market, Efficient Market Hypothesis (EMH), Environmental, Social, and Governance Scores, and Random Walk Hypothesis

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