Should you invest in the companies that promote the Circular Economy idea?

Abstract

Purpose

The study looks into the idea of Circular Economy through the lens of stock market performance. More specifically the authors examine if a company's association with the innovative and environment friendly disposal practices has an implication on its stock market performance.

Design/methodology/approach

The study adopts a quantitative approach to derive conclusions. The market efficiency and excess volatility are estimated using OHLC measures for more accuracy. For robustness checks VRatio, bootstrapping and simulation are used as detailed in section 3.2 of the study.

Findings

The study estimates show a clear sign of excess volatility in the majority of the stocks under consideration. That confirms that the market is highly fragmented for Circular Economy–focused stocks. These types of stocks are often cyclical in nature and can offer a variety investment opportunity in the short to medium term. In addition to it the study estimates confirm that Circular Economy–focused stocks show limited signs of market efficiency. Thus, unlike ESG investment the concept of Circular Economy investment is a bit more ambiguous to the global investors.

Originality/value

The present study is first of its kind that looks into the idea of Circular Economy through the lens of stock market performance.

Citation

Murali, M., Kayal, P. and Maiti, M. (2023), "Should you invest in the companies that promote the Circular Economy idea?", Management of Environmental Quality, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MEQ-07-2022-0193