Forecasting geopolitical and trade policy uncertainties for ESG stock markets in developed and developing countries

Purpose This study investigates the influence of trade policy uncertainty (TPU) and geopolitical uncertainty (GPU) on ESG stock performance and further examines their interconnectedness across developing and developed markets. Design/methodology/approach This study used GARCH-MIDAS and DCC-GARCH techniques for data analysis. The study collected monthly and daily TPU and GPU data from https://www.matteoiacoviello.com/. The daily data of ESG Leader indexes were obtained from MSCI and span from 2014 to 2024. Findings The findings show that ESG stocks serve as a safe-haven asset, making them an attractive option during times of GPU. ESG stocks tend to increase significantly during periods of high GPU, reinforcing that ESG stocks remain resilient. This highlights their potential as a reliable choice for investors navigating turbulent market conditions. It gives high returns during periods of uncertainty. ESG stocks are a strategic option for those seeking growth and stability in their portfolio. The Results found a positive impact of TPU on UESGL, CESGL and JESGL, while a negative influence on CHESGL and IESGL, reflecting the sensitivity of these markets to regulatory rigidity and trade disruptions. The DCC-GARCH results indicate that UESGL, CESGL and JESGL act as net receivers of shocks while CHESGL and IESGL serve as net transmitters. The result of net directional connectedness reveals that UESGL is a net receiver throughout the sample periods, confirming the safe-haven role of US ESG equities. Originality/value The contribution of this study offers valuable insights for policymakers, scholars and investors navigating the increasingly complex global economic landscape.