To what extent does a company’s inclusion or exclusion from the Dow Jones Sustainability Index Emerging Markets impact its stock prices?

Rising interest in sustainability has led to increased discussions regarding companies’ ESG practices and their impact on stock prices. Emerging markets, however, have historically been overlooked in this conversation, with only a minority of scientific articles focusing on them. The purpose of this master’s thesis is to investigate the potential impact of sustainable news on stock prices in developing countries by analyzing changes in stock returns following updates in constituents of the Dow Jones Sustainability Index Emerging Markets. Using an event study methodology, this study analyzed changes in stock returns for companies added, removed, and maintained from the DJSI Emerging Markets between 2019 and 2023 and compared the results obtained to existing literature. Short-term changes in stock returns following the announcement of the updated index were noticed for all samples, whether they were added, deleted, or maintained in the index. Companies included/excluded from the index first experienced a small increase/decrease in abnormal returns around the announcement date before going in the opposite direction after the effective change date. Stocks maintained in the index for more than one consecutive year suffered a minimal decrease in abnormal returns in the days preceding the release of the updated constituents’ list, which then turned into a temporary increase in after the announcement date. No significant long-term effects of the event were found for any of the samples studied. This study contributed to developing a greater general understanding of Emerging Markets’ reactions and behaviors toward both positive and negative sustainability-related news.