ABSTRACT Sustainability has become an important factor shaping financial markets and investor behavior. This paper examines the relationship between sustainability indices and Central European stock markets using a time–frequency approach. Wavelet coherence is employed to capture time‐varying co‐movements between sustainability indices and stock market returns in the Czech Republic, Poland, Hungary, and Slovakia. In addition, SHapley Additive exPlanations (SHAP) are used as a descriptive tool to summarize contemporaneous associations between sustainability indices and stock market returns. The results reveal strong regime dependence. During the COVID‐19 pandemic, sustainability indices exhibited pronounced coherence with stock markets across both short‐ and long‐term frequencies, indicating heightened interdependence. In contrast, during the period associated with the war in Ukraine, the relationship is mainly confined to high‐frequency dynamics. Substantial cross‐market heterogeneity is observed, with stronger linkages for the Czech, Polish, and Hungarian markets and weaker or negative associations for the Slovak market. A complementary forecasting analysis shows that sustainability‐related information provides only limited short‐term predictive power for daily returns once standard market‐wide factors are controlled for. Overall, the findings suggest that sustainability influences stock markets primarily through time‐varying and regime‐dependent channels rather than through consistent short‐term return predictability.
Janková et al. (Fri,) studied this question.