Exploring ESG financial markets, sustainable efficiency, and behavioral determinants of financial wellbeing: a comprehensive analysis

Abstract

This research examines three interconnected dimensions within sustainable finance and financial well-being. First, it analyzes the connectedness between Environmental, Social, and Governance (ESG) and non-ESG financial assets-specifically exchange-traded funds (ETFs) and indices-and their relationship with interest rates in the bond market through time. Using a dataset from September 2018 to February 2024 and employing Time-Varying Parameter Vector Autoregressions (TVP-VAR), the study reveals that volatility spillovers and net connectivity between ESG and non-ESG instruments vary across pre-pandemic, pandemic, and post-pandemic periods. Notably, non-ESG assets were primary volatility transmitters before and during COVID-19, while ESG instruments assumed this role afterward, indicating a structural shift in market dynamics. Second, the study evaluates the efficiency of green and sustainable financial instruments through Shannon Entropy and the Hurst Exponent methodologies. The analysis, covering February 2019 to February 2024, finds that ESG instruments generally demonstrate higher form efficiency in the long term, although most fail to fully incorporate all available information over short periods. Some instruments, such as the iShares Global Clean Energy ETF, consistently exhibit stronger efficiency, while others show deviations, highlighting heterogeneity within sustainable finance assets. These findings contribute to understanding the evolving behavior and efficiency of ESG markets under varying economic conditions. Third, the research explores determinants of financial well-being perception among university students, focusing on financial knowledge, literacy, and family financial conversations. Using structural equation modeling and regression analyses, the study finds that increased financial literacy and active family discussions about finance significantly enhance students perceived financial well-being. Demographic factors such as gender and age also influence these perceptions, underscoring the importance of educational and familial environments in fostering responsible financial attitudes and behaviors, especially in emerging economies. Overall, this multi-faceted research advances the literature by providing empirical evidence on the dynamic connectedness and efficiency of ESG and non-ESG financial instruments, while integrating a social dimension through the study of financial well-being determinants. The findings offer valuable insights for investors, policymakers, and educators aiming to promote sustainable investment practices, improve market transparency, and enhance financial literacy in a rapidly evolving economic landscape.