Herding and Anti-Herding Across ESG Funds

29 Pages Posted: 11 Nov 2021

See all articles by Rocco Ciciretti

Rocco Ciciretti

Tor Vergata University of Rome - Department of Economics and Finance

Ambrogio Dalò

University of Groningen - Faculty of Economics and Business

Giovanni Ferri

LUMSA University

Date Written: November 5, 2021

Abstract

We investigate to what extent ESG funds present an herding/anti-herding behavior, and the consequences of their investment strategies in terms of both systematic risk exposure and risk-adjusted returns. Our findings document that ESG funds pursue an anti-herding strategy that leads to higher risk-adjusted returns. Specifically, a one standard deviation increase in ESG score at the fund-level is associated with an increase in fund performance of about 3.74 basis points per year. Moreover, we document that such an enhanced performance does not come at the cost of higher systematic risk exposure but instead reduces it. A possible explanation behind our findings is that after the catching-up phase previously documented by the literature, ESG funds are now able to put to good use enhanced stock-picking skills built over the years.

Keywords: ESG investing, Equity Funds, Herding, Anti-Herding, Risk-Adjusted Returns

JEL Classification: G11, C58

Suggested Citation

Ciciretti, Rocco and Dalò, Ambrogio and Ferri, Giovanni, Herding and Anti-Herding Across ESG Funds (November 5, 2021). CEIS Working Paper No. 524, Available at SSRN: https://ssrn.com/abstract=3957232 or http://dx.doi.org/10.2139/ssrn.3957232

Rocco Ciciretti (Contact Author)

Tor Vergata University of Rome - Department of Economics and Finance ( email )

Via Columbia, 2
Roma, 00133
Italy
+39 06 72595925 (Phone)

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

Ambrogio Dalò

University of Groningen - Faculty of Economics and Business ( email )

Nettelbosje 2
Groningen, Groningen 9747 AE
Netherlands
+31 50 36 37194 (Phone)

HOME PAGE: http://https://sites.google.com/view/ambrogiodalo/home

Giovanni Ferri

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

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