Do positive actions relating to social issues affect the US stock market?

Abstract

This research uses a sample of S&P 500 constituents which had events concerning Social Issues and more specifically Black Lives Matter, Women rights and LGBTQ community people rights which were considering only positive actions towards them, the events were for the period January 2018 – August 2020. Most of the events were concerning LGBTQ community followed by the other 2 issues 72 and 14 respectively from a total of 85 events used (there were events which considered more than 1 issue. These events were evaluated in three ways, initially an event study was carried out for the sample using Market-Model to calculate the cumulative abnormal returns (CAR) for the event windows used 21 days (-10,10), 11 days (-5,5) and 3 days (-1,1). The main research hypothesis for the event study was that CAR would be very small which would show that the investing community did not find the news significant to them to change their investment strategy towards these firms, followed by another hypothesis of investors reacting negatively to this news. To furtherly evaluate the hypotheses bid-ask spreads and trading volume were analysed. For CAR analysis the results were as expected except some negative results for all windows considering Black Lives Matter, it could indicate a negative view from the investors to the issue, but the small sample of articles for it deem it not significant. For Bid-Ask spread analysis the liquidity of the firms did not change at a considerable level which is due to the already good liquidity of the stock of the firms being in S&P 500. Finally, for Trading volume there was observed a decline in 3-days window (-1,1) for all events which could be due to disinterest of investors in these issues, it was more prevalent in Women Rights sample Approximately 20%), but as it was very small it was not considered significant. The results overall indicate these actions from the firms are not concerning the investing community in any significant way except some evidence in CAR for Black Lives Matter and in trading volumes for Women Rights, which are very small samples though, so they are not significant results.