ESG and the Market Return

71 Pages Posted: 6 Sep 2022 Last revised: 7 Sep 2022

See all articles by Ran Chang

Ran Chang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Liya Chu

East China University of Science and Technology (ECUST)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Date Written: December 1, 2020

Abstract

We examine the relation between firms’ environmental, social, and governance (ESG) performance and aggregate stock market returns. Based on 38 ESG scores, we construct a market-level ESG index and find its strong positive predictive power on the market returns both in- and out-of-sample, and the predictability stems from both cash flow and discount rate channels. Our findings are robust to alternative machine learning methods and to a number of controls. Our novel result of the market-wide impact of the ESG provides support for the economy-wide importance of the ESG and the associated policies.

Keywords: ESG, Return Predictability, Partial Least Square, Elastic Net, Neural Networks

JEL Classification: C22, C53, G11, G12, G17

Suggested Citation

Chang, Ran and Chu, Liya and Zhang, Bohui and Zhou, Guofu and Tu, Jun, ESG and the Market Return (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3869272 or http://dx.doi.org/10.2139/ssrn.3869272

Ran Chang (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, 200030
China

Liya Chu

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Jun Tu

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

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