Betting Against ESG Sinners: Evidence From Short Selling Around the World
20 Pages Posted: 9 May 2024 Last revised: 24 Jan 2025
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: Suggested Citation