ESG, Risk Pricing And Sustainability Convergence in Emerging Equity Markets: Evidence From Borsa Istanbul

Sarvenaz Erfani Hooshiaran

ESG, Risk Pricing And Sustainability Convergence in Emerging Equity Markets: Evidence From Borsa Istanbul

Tezin Türü: Doktora

Tezin Yürütüldüğü Kurum: İstanbul Ticaret Üniversitesi, İşletme Fakültesi, İşletme Bölümü, Türkiye

Tezin Onay Tarihi: 2026

Tezin Dili: İngilizce

Öğrenci: Sarvenaz Erfani Hooshiaran

Danışman: Recep Ali Küçükçolak

Özet:

The ESG factors have gained a more and more prominent position in the contemporary financial markets as investors, regulators and corporations are starting to incorporate sustainability in their decision making. Although there has been a significant amount of literature investigating the economic consequences of ESG in the developed world, there is little empirical evidence of the same in the emerging economies, which is usually inconclusive. Lack of institutional quality, regulatory frameworks, disclosure practices and investor behavior are some of the differences between emerging and developed markets that can play a great role in the integration of ESG information in financial decisions. In this respect, the current research explores the issue of ESG characteristics in an emerging equity market with reference to the companies listed in Borsa Istanbul.

The ESG analysis focuses on six financially market dimensions that are all interrelated, i.e., the dynamics of volatility, the risk-adjusted returns on a portfolio, the crisis resilience, the implications on the asset prices, the firm-specific determinants of ESG performance, and the convergence dynamics. The analysis applies several econometric models such as Generalized Autoregressive Conditional Heteroskedasticity (GARCH) with a sample of publicly traded Turkish firms and available ESG ratings, panel regression models, event study, and cross-sectional regressions.

To start with, the research considers the hypothesis of a lower stock price volatility in firms that have more ESG performance. The GARCH (1,1) models are applied to estimate firm-level volatility and the cross-sectional regressions are applied to test the correlation between ESG scores and volatility. The findings show that the volatility of different firms differs considerably, but the ESG performance is not a significant factor that has contributed to these variations.

Second, the study examines the hypothesis of the better risk-adjusted performance of a portfolio of high-ESG firms relative to a portfolio of low-ESG firms. Sharpe ratios and regression analysis of portfolio performance are assessed by ESG classifications. The results show that ESG performance premium does not exist in the Turkish market. As a matter of fact, ESG-ESG portfolios sometimes have higher risk-adjusted returns, which could be an indication that ESG information is yet to be fully considered in the asset allocation decision in this new market.

Third, the research evaluates the ESG performance to boost corporate resilience amid market stress. Abnormal returns and cumulative abnormal returns are estimated using an event study

framework that targets the performance of the market during the periods of crisis, specifically the Turkish currency crisis of 2018 and the COVID-19 market shock. Despite the indications of descriptive statistics that high-ESG firms can make slightly less losses, the results of the econometric analysis do not statistically support the claim that ESG enhances the ability to withstand a crisis.

Fourth, the research tests whether the expected returns are priced in ESG characteristics. The relationship between ESG scores and the future stock returns are analyzed by using panel regression models with firm fixed effects and time effects. The findings indicate that ESG coefficients are not statistically significant and this means that ESG is not systematic pricing as a risk factor in Borsa Istanbul.

Fifth, the analysis considers the determinants of ESG performance structure through exploring the association between firm size and ESG scores. Cross-sectional regression findings show a positive correlation between market capitalization and ESG performance to be statistically significant and positive. The bigger companies are more likely to have higher ESG scores, probably because of the more resources to allocate towards sustainability projects, increased public attention, and the regulation.

Lastly, the paper investigates the dynamic variation of ESG performance by conducting a test on convergence between firms. With the convergence regression model, the findings indicate a strong negative correlation between initial ESG scores and the later ESG growth, which implies that, the companies that have lower initial ESG scores are likely to improve faster with time. This trend indicates that the Turkish market has ESG catch-up dynamics.

On the whole, the results suggest that ESG features in Borsa Istanbul are more closely linked to firm structure and long-term sustainability processes rather than conventional financial performance indicators or risk pricing processes. The findings can be utilized in the current body of sustainable finance research to introduce new evidence regarding ESG performance in new equity markets. They also put a strong emphasis on the role of institutional development, regulatory systems and market maturity in deciding on the application of sustainability information in financial markets.

Keywords

Environmental, Social, and Governance (ESG); Sustainable Finance; Emerging Markets; Borsa Istanbul; Stock Market Volatility; Risk-Adjusted Performance; Crisis Resilience; Asset Pricing; Firm Size; ESG Convergence; Sustainable Investing.