ESG Preference, Institutional Trading, and Stock Return Patterns

42 Pages Posted: 9 Apr 2019 Last revised: 1 Apr 2020

See all articles by Jie Cao

Jie Cao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Xintong Zhan

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Weiming Elaine Zhang

The Chinese University of Hong Kong (CUHK)

Date Written: March 31, 2020

Abstract

Socially responsible (SR) institutions tend to focus more on the ESG performance and devote less attention to quantitative signals of value. We conjecture that this implies that stocks with high SR institutional ownership underreact to quantitative mispricing signals. Consistent with this conjecture, we find that a composite of 11 mispricing signals more reliably predicts the returns of those stocks held by more SR institutions. The link between SR institutional ownership and the efficacy of mispricing signals only emerge in recent years with the rise of ESG investing, and is significant only when there are arbitrage-related funding constraints.

Keywords: ESG preference; institutional trading; stock mispricing; stock return patterns

JEL Classification: G23; G41; G14; M14

Suggested Citation

Cao, Jie and Titman, Sheridan and Zhan, Xintong and Zhang, Weiming Elaine, ESG Preference, Institutional Trading, and Stock Return Patterns (March 31, 2020). Available at SSRN: https://ssrn.com/abstract=3353623 or http://dx.doi.org/10.2139/ssrn.3353623

Jie Cao

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, NT
Hong Kong
(852) 3943 7757 (Phone)
(852) 2603 6586 (Fax)

HOME PAGE: http://sites.google.com/site/jiejaycao

Sheridan Titman (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xintong Zhan

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
Shatin, NT
Hong Kong

HOME PAGE: http://sites.google.com/view/xintongzhan

Weiming Elaine Zhang

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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