A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Green Investing and Sin Stock Exclusion

92 Pages Posted: 20 Sep 2019 Last revised: 16 Jan 2020

See all articles by Olivier David Zerbib

Olivier David Zerbib

Tilburg School of Economics and Management; University of Claude Bernard Lyon 1 - Institute of Finance and Insurance Science (ISFA)

Date Written: January 5, 2019

Abstract

This paper shows how sustainable investing affects asset returns through environmental, social, and governance (ESG) integration and exclusionary screening. I develop an asset pricing model with partial segmentation and disagreement. The occurrence of a taste premium, accompanied by a fall in the market premium, clarifies the relationship between ESG and financial performance. The exclusion effect is driven by two exclusion premia that generalize Merton's (1987) premium on neglected stocks. I construct a proxy for sustainable investors' tastes by comparing green with conventional fund holdings and estimate the model applied to green investing and sin stock exclusion using U.S. data for 2003-2018.

Keywords: sustainable finance, environmental finance, behavioral finance, ESG, tastes, sin stocks, segmentation

JEL Classification: G12, G11

Suggested Citation

Zerbib, Olivier David, A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Green Investing and Sin Stock Exclusion (January 5, 2019). Available at SSRN: https://ssrn.com/abstract=3455090 or http://dx.doi.org/10.2139/ssrn.3455090

Olivier David Zerbib (Contact Author)

Tilburg School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

University of Claude Bernard Lyon 1 - Institute of Finance and Insurance Science (ISFA) ( email )

50, Avenue Tony Garnier
Lyon Cedex 07, 69366
France

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