Backtesting ESG Factor Investing Strategies

9 Pages Posted: 15 Jul 2020

Date Written: June 22, 2020

Abstract

This paper takes an in-depth look at socially responsible investing and problems associated with it. One of the main problems with ESG factor investing is caused by data. Firstly, we obtained unfiltered ESG data from OWL Analytics. Secondly, we reviewed two strategies based on ESG Factor investing: ESG Factor Momentum Strategy and ESG Level Factor Strategy. After we tested both of these strategies on our data, we concluded factor strategies based on ESG scoring seem to be profitable during the last several years. Our findings confirm the broader trend of recent outperformance of strategies based on ESG. Unexpectedly ESG level had better performance than the ESG momentum. Performance of the momentum was positive, although low; compared to the notable performance of ESG level. ESG scoring seems to be applicable to use in the portfolio as an addition to other better-known factors. Nonetheless, we still recommend caution because of the inconsistency of the ESG data among data providers.

Keywords: ESG, socially responsible investing, trading strategy, momentum, ESG Level, ESG momentum, backtesting

Suggested Citation

Hanicova, Daniela and Vojtko, Radovan, Backtesting ESG Factor Investing Strategies (June 22, 2020). Available at SSRN: https://ssrn.com/abstract=3633303 or http://dx.doi.org/10.2139/ssrn.3633303

Daniela Hanicova

Quantpedia ( email )

Dulovo namestie 14
Bratislava, 85110
Slovakia

Radovan Vojtko (Contact Author)

Quantpedia.com ( email )

Dulovo namestie 14
Bratislava, 85110
Slovakia

HOME PAGE: http://www.quantpedia.com

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