Do ESG Preferences Survive in the Trading Room? An Experimental Study

Abstract

We conduct a trading experiment within a competitive tournament setting to investigate whether Socially Responsible Investors (SRIs) and students trade in coherence with their stated ESG preferences. Our findings indicate that participants who claim to have high ESG preferences trade inconsistently with patterns usually observed in responsible investing, i.e. longer investment horizons. Trading decisions are primarily driven by financial considerations and not ESG preferences. We conclude that stronger stated ESG preferences do not survive in a competitive trading room that rewards profit maximization. However, SRIs - professionals employed by PRI signatories - trade less aggressively on short-term news than students.

Keywords: F340, M410, Q5, M370 ESG reporting, signaling theory, refinancing risk, corporate bonds, voluntary disclosure

JEL Classification: G11, G12. G50, Q51