Behavioral Finance and Sustainable Green Investing

Dear Colleagues,

In recent years, sustainable green investing has gained significant traction as individuals, institutions, and governments recognize the pressing need to address climate change and environmental degradation (Boubaker et al., 2024). At the same time, the field of behavioral finance—an area that combines psychology and economics to explain investor behavior—offers critical insights into how and why people make financial decisions that may deviate from traditional economic theory (Hasan and Al-Najjar, 2024). When combined, behavioral finance and sustainable investing create a dynamic interplay that influences the effectiveness and appeal of green financial products (Hasan and Al-Najjar, 2024).

Behavioral finance challenges the traditional notion of rational markets by introducing psychological influences on investor behavior (Baker and Wurgler, 2006). Key concepts include heuristics (mental shortcuts), overconfidence, loss aversion, and herding behavior. These biases often lead investors to make irrational or suboptimal decisions, such as panic selling during a market downturn or overinvesting in popular stocks. In the context of sustainable investing, these behavioral biases can both hinder and promote environmentally responsible investment decisions.

Sustainable investing involves integrating environmental, social, and governance (ESG) factors into financial decision-making. Green investing, a subset of ESG investing, focuses specifically on companies and projects that support environmental sustainability, such as renewable energy, clean technology, and carbon-neutral initiatives.

Investor interest in sustainable investments is driven by a combination of ethical motives, long-term risk mitigation, and financial returns. Many investors now recognize that companies with strong ESG practices may be better positioned for long-term success. However, emotional and psychological factors—rather than purely rational analysis—often drive these investment decisions.

I am writing to invite you to submit academic articles addressing the following topics, among others:

• Investor psychology and green investment decisions;
• Perception of risk and return in sustainable assets;
• Social norms, values, and moral motivation;
• Heuristics and decision-making under uncertainty;
• Institutional behavior and green finance;
• Information processing and ESG communication;
• Behavioral factors in ESG fund performance;
• Climate change, emotions, and investment behavior;
• Financial literacy and sustainable investing;
• Experimental and behavioral interventions.

References:

Baker, M., and Wurgler, J., 2006. Investor sentiment and the crosssection of stock return. Journal of Finance, 61(4), 1645–1680.

Boubaker, S., Choudhury, T., Hasan, F. and Nguyen, D.K., 2024. Firm carbon risk exposure, stock returns, and dividend payment. Journal of Economic Behavior & Organization, 221 (5), pp.248-276.

Hasan, F. and Al-Najjar, B., 2024. Exploring the connections: Dividend announcements, stock market returns, and major sporting events. Review of Quantitative Finance and Accounting, 63(3), pp.889-923.

Hasan, F. and Al-Najjar, B., 2024. Green investment and dividend payouts: An intercontinental perspective, Journal of Environmental Management, 370, 122626.

Dr. Fakhrul Hasan
Guest Editor

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