Dear Statalisters,
Currently I am facing two problems.
1, Conceptually understanding 4-Quarter Return Volatility.
2, Calculating 4-Quarter Return Volatility in my dataset.
Firstly, if you could explain what 4 quarter return volatility means, I would appreciate it, I have tried to look online, but with no success so far. I am writing my thesis based on the work of Darolles et al. (2023) "Understanding the effect of ESG scores on stock returns using mediation theory" where they use this as one of their control variables. (I would like to use it as my mediator.) In a nutshell, I would like to conduct mediation analysis with ESG score as the main independent variable, 4 quarter return volatility as the mediator and excess stock returns as the dependent variable.
In my dataset I have the cusip id-s of the firms that I am investigating (175k obs), a datatype for the 1, ESG score 2, Environmental pillar (E in ESG) 3, Social pillar 4, Governance pillar. I have quarterly data between 2002q1 and 2020q4. I have calculated logarithmic forward returns as well.
I was wondering if the following set of commands would be a good way forward:
sort supersector time
by supersector time: egen supersector_volatility = sd(log_return)
by supersector: egen mean_supersector_volatility = mean(supersector_volatility)
Thank you for your answer beforehand. Alternatively, if you could provide any way to meaningfully calculate 4 quarter return volatility, I would highly appreciate it.
Best regards,
Dominik Nagy
Currently I am facing two problems.
1, Conceptually understanding 4-Quarter Return Volatility.
2, Calculating 4-Quarter Return Volatility in my dataset.
Firstly, if you could explain what 4 quarter return volatility means, I would appreciate it, I have tried to look online, but with no success so far. I am writing my thesis based on the work of Darolles et al. (2023) "Understanding the effect of ESG scores on stock returns using mediation theory" where they use this as one of their control variables. (I would like to use it as my mediator.) In a nutshell, I would like to conduct mediation analysis with ESG score as the main independent variable, 4 quarter return volatility as the mediator and excess stock returns as the dependent variable.
In my dataset I have the cusip id-s of the firms that I am investigating (175k obs), a datatype for the 1, ESG score 2, Environmental pillar (E in ESG) 3, Social pillar 4, Governance pillar. I have quarterly data between 2002q1 and 2020q4. I have calculated logarithmic forward returns as well.
I was wondering if the following set of commands would be a good way forward:
sort supersector time
by supersector time: egen supersector_volatility = sd(log_return)
by supersector: egen mean_supersector_volatility = mean(supersector_volatility)
Thank you for your answer beforehand. Alternatively, if you could provide any way to meaningfully calculate 4 quarter return volatility, I would highly appreciate it.
Best regards,
Dominik Nagy
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