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Research Interest

ESG and Sustainable Finance

Vine Copula  Modeling and Risk Analysis

Statistics and Financial Econometrics

Working Papers

Spillovers in Europe: the Role of ESG

With Bonaccolto, Giovanni & Paterlini, Sandra (2023)

Status: Currently under review

Available at SSRN 4431450

This paper explores the relationship between environmental, social and governance (ESG) information and systemic risk, an increasingly important issue for both regulators and investors. While ESG ratings are widely used to assess a company's non-financial performance, the impact of these factors on financial stability and systemic risk is still under debate. By extending the Forecast Error Variance Decomposition (FEVD) method with a double regularization on both the underlying vector autoregressive (VAR) parameters and the covariance matrix of the VAR residuals, we are able to address the curse of dimensionality within each estimation. This allows us to examine how vulnerable a company is and how much systemic impact a company has given its specific ESG. Looking at a larger sample of European stocks over the period 2007-2022, we empirically show that both the best and worst ESG performers have the largest impact on the financial system in normal times. However, during a crisis, companies with the best ESG ratings generate significant spillovers throughout the system. These findings highlight the importance of incorporating ESG factors into systemic risk assessments and monitoring companies' ESG performance to ensure financial stability. Policymakers can benefit from this research by supporting investment in high ESG companies to mitigate relevant spillovers during stressed market conditions, when such companies are more interconnected.

Which ESG dimension matters most to private investors?

An experimental study on financial decisions

With Benuzzi, Matteo and Klaser, Klaudijo (2023)

Status: Working Paper

Available at SSRN 4262763

The UN list of Sustainable Development Goals (SDGs) has made it widely recognized that sustainability is not exclusively an environmental concept but it rather has multiple dimensions. In the same vein, different non financial information and actions, specifically environmental, social, and governance (ESG), have been provided and undertaken by companies. However, since their introduction, many scholars have questioned whether these three ESG dimensions are equally important under different perspectives. For example, especially since the process of climate change is rapidly evolving, recently, the environmental dimension (E-Pillar) has received more attention than other sustainability factors. In this paper, we focus on the investment decision-making process of retail investors when ESG information is provided. Moreover, in addition to considering the E, S, and G dimensions, we introduce an F-dimension, which encompasses actions that aim to directly impact future generations. In order to explore the mentioned relationship, we follow an experimental approach that allows us to disentangle how these four dimensions (E, S, G, and F) interact with different risk-return configurations and, therefore, with investors' preferences. Preliminary analyses indicate that investors trade-off financial returns with pro-social objectives, i.e. they invest in sustainable companies in which they would not have invested if they had considered only the personal financial consequences. Furthermore, our results show that the subjects attribute different weightings to the ESGF dimensions: when adopting a purely sustainable perspective, the E-Pillar ranks first, while when adopting a financial perspective, the S-Pillar is the most relevant. Finally, the F-pillar does not seem to play a significant role in the decision, because it is perceived as a factor complementary to the other three.

A generalized precision matrix for t-Student distributions in portfolio optimization.

With Taufer, Emanuele & Paterlini, Sandra (2023)

Status: Currently under review

Available at SSRN 4063255​

The Markowitz model remains the foundation of modern portfolio theory. Specifically, when aiming to construct a minimum-variance portfolio, only the covariance matrix - or its inverse, the precision matrix - is needed as input. However, little attention has been given to the limitations of this approach in accurately capturing dependence structures in non-Gaussian settings. This study introduces a Generalized Precision Matrix (GPM) that is applicable to a broader class of distributions, including the multivariate t, multivariate skew-normal, and multivariate skew-t distributions. The effectiveness of the proposed GPM is then evaluated using simulated and real-world financial data. Notably, the multivariate skew-t model demonstrates superior fitting ability during crisis periods.


Published Papers

Bax, K., Müller, S. & Paterlini, S. (forthcoming). Sustainability Transmission through Focal Nodes in Supply Chain Networks. Finance Research Letters.

DOI: 10.1016/

Sommer, E., Bax, K. & Czado, C. (forthcoming). Vine Copula based Portfolio Level Conditional Risk Measure Forecasting. Econometrics and Statistics.

DOI: 10.1016/j.ecosta.2023.08.002

Bax, K., Sahin, Ö., Czado, C. & Paterlini, S. (2023). ESG, Risk, and (Tail) Dependence. International Review of Financial Analysis. 87(May 2023).

DOI: 10.1016/j.irfa.2023.102513

Bax, K. (2023). Do diverse and inclusive workplaces benefit investors?  An Empirical Analysis on Europe and the United States. Finance Research Letters 53(March 2023).

DOI: 10.1016/

Bax, K., Bonaccolto, G., & Paterlini, S. (2022). Do Lower ESG Rated Companies Have Higher Systemic Impact? Empirical Evidence from Europe and the United States. Corporate Social Responsibility and Environmental Management 30(3), p. 1406-1420.

DOI: 10.1002/csr.2427

Czado, C., Bax, K., Sahin, Ö., Nagler, T., Min, A., & Paterlini, S. (2022). Vine copula based dependence modeling in sustainable finance. Journal of Finance and Data Science (JFDS) 8(November 2022).

DOI: 10.1016/j.jfds.2022.11.003

Sahin, Ö, Bax, K.,  Paterlini, S., & Czado, C. (2022). The pitfalls of (non-definitive) Environmental, Social, and Governance scoring methodology. Global Finance Journal 56(May 2023).

DOI: 10.1016/j.gfj.2022.100780

Sahin, Ö, Bax, K.,  Paterlini, S., & Czado, C. (2022). ESGM: ESG scores and the Missing pillar - Why does missing information matter?. Corporate Social Responsibility and Environmental Management 29(5), p. 1782-1798.

DOI: 10.1002/csr.2326

Bax, K. & Paterlini, S. (2022). Environmental Social Governance Information and Disclosure from a Company Perspective: a Structured Literature Review. International Journal of Business Performance Management, 23(3), p. 304–322. DOI: 10.1504/IJBPM.2022.123824

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