Betting Against ESG Sinners: Evidence From Short Selling Around the World

20 Pages Posted: 9 May 2024 Last revised: 24 Jan 2025

See all articles by Tsuyoshi Iwata

Tsuyoshi Iwata

University of Zurich

Tomasz Orpiszewski

Zurich University of Applied Sciences

Mark Thompson

Austrian Institute of Technology

Date Written: May 6, 2024

Abstract

This paper explores the uncharted territory of short-selling around negative environmental, social, and governance (ESG) events. Leveraging unique datasets from FIS Global and RepRisk, we investigate shorting behavior and ESG incidents across three prominent equity indices in the United States, Europe, and Japan. This paper provides the first empirical evidence on stock price behavior and short-selling demand around negative ESG events, offers the realistic backtesting results for ESG short-only and long-short strategies using effective borrowing rates, and finds an implication for policymakers that encouraging ESG shorting can enhance market efficiency and companies' ESG compliance.

Keywords: ESG news, Short selling, Short interest, Propensity score matching, ESG shorting

JEL Classification: G12; G15

Suggested Citation

Iwata, Tsuyoshi and Orpiszewski, Tomasz and Thompson, Mark, Betting Against ESG Sinners: Evidence From Short Selling Around the World (May 6, 2024). Available at SSRN: https://ssrn.com/abstract=4818314 or http://dx.doi.org/10.2139/ssrn.4818314

Tsuyoshi Iwata

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Tomasz Orpiszewski (Contact Author)

Zurich University of Applied Sciences ( email )

Gertrudstrasse 8
Winterthur, 8401
Switzerland

Mark Thompson

Austrian Institute of Technology ( email )

Donau-City-Strasse 1
Vienna, 1220
Austria

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