Policy Uncertainty and the Volatility of the S&P 500: Before and After the Launch of the S&P 500 ESG

Abstract

This paper examines the asymmetric effect of economic policy uncertainty, geopolitical risk, and climate policy uncertainty on the volatility of the S&P 500 stock index, before and after the launch of the S&P 500 ESG Index, by using a Non-linear Autoregressive Distributed Lag (NARDL) model, for the period January 2010 to august 2022.We provide evidence on the asymmetric impact of climate policy uncertainty on the volatility of the S&P 500 both in the short-run and in the long-run, and this asymmetry is more frequent after the launch of the S&P 500 ESG Index. Moreover, in the long-run, a decrease in the economic policy uncertainty after the launch of the S&P 500 ESG has greater effect on volatility of the S&P 500, than the short-run. We also find that positive and negative shocks to geopolitical risk before and after the launch of the S&P500 ESG index do not affect the volatility of the S&P 500 stock market index in the short -run and long.