ESG Rating, Investor Attention, and Stock Returns in China December 2022

Research Article
Open access

ESG Rating, Investor Attention, and Stock Returns in China December 2022

Kaiyue Qin 1*
  • 1 Zhejiang University of Technology    
  • *corresponding author qky030justin@163.com
Published on 13 September 2023 | https://doi.org/10.54254/2754-1169/22/20230326
AEMPS Vol.22
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-87-4
ISBN (Online): 978-1-915371-88-1

Abstract

We study whether ESG ratings can predict stock returns in China. We find marginal evidence that stocks with higher ESG ratings have lower future returns. In addition, we explore the cross-sectional and timeseries heterogeneities of the relationship between ESG and stock returns. We find the predictability of ESG rating is stronger for stocks in the industries that are important to climate change, and the relationship is only significant after 2018 when climate change is evident to investors in China. Overall, our findings show that investors’ attention is crucial for the stock return predictability of ESG ratings in China.

Keywords:

ESG ratings, investors’ attention, stock returns

Qin,K. (2023). ESG Rating, Investor Attention, and Stock Returns in China December 2022. Advances in Economics, Management and Political Sciences,22,305-313.
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References

[1]. AMAC. Special Survey Report on ESG Investment in China's Fund Indus- try(2019)(Chinese). From:

[2]. https://www.amac.org.cn/researchstatistics/report/gmjjhybg/202003/P02020033070643000 8626.pdf

[3]. Pástor Ľ, Stambaugh R F, Taylor L A. Sustainable investing in equilibrium[J]. Journal of Financial Economics, 2021, 142(2): 550-571.

[4]. Pástor Ľ, Stambaugh R F, Taylor L A. Dissecting green returns[J]. Journal of Financial Economics, 2022, 146(2): 403-424.

[5]. Hong H, Kacperczyk M. The price of sin: The effects of social norms on markets[J]. Jour- nal of financial economics, 2009, 93(1): 15-36.

[6]. Garvey G T, Iyer M, Nash J. Carbon footprint and productivity: does the “E” in ESG cap- ture efficiency as well as environment[J]. J Invest Manag, 2018, 16(1): 59-69.

[7]. In S Y, Rook D, Monk A. Integrating alternative data (also known as ESG data) in invest- ment decision making[J]. Global Economic Review, 2019, 48(3): 237-260.

[8]. Times F. The ethical investment boom. James Kynge, September 7[J]. 2017

[9]. Bennani L, Le Guenedal T, Lepetit F, et al. How ESG Investing has impacted the asset pricing in the equity market[J]. Available at SSRN 3316862, 2018.

[10]. Pedersen L H, Fitzgibbons S, Pomorski L. Responsible investing: The ESG-efficient fron- tier[J]. Journal of Financial Economics, 2021, 142(2): 572-597.

[11]. Bolton P, Kacperczyk M. Do investors care about carbon risk?[J]. Journal of financial economics, 2021, 142(2): 517-549.

[12]. Fama, Eugene F., and Kenneth R. French. "The cross‐section of expected stock returns." the Journal of Finance 47.2 (1992): 427-465.

[13]. Maruthi G D, Rashmi R. Green Manufacturing: It's Tools and Techniques that can be im- plemented in Manufacturing Sectors[J]. Materials Today: Proceedings, 2015, 2(4-5): 3350- 3355.

[14]. Omer A M. Energy, environment and sustainable development[J]. Renewable and sustain- able energy reviews, 2008, 12(9): 2265-2300.

[15]. Bridge G. Contested terrain: mining and the environment[J]. Annual review of Environ- ment and Resources, 2004, 29: 0_2.

[16]. Litman T, Burwell D. Issues in sustainable transportation[J]. International Journal of Global Environmental Issues, 2006, 6(4): 331-347.

[17]. e.g., Pederson, et al, 2020

[18]. Deng X, Cheng X. Can ESG indices improve the enterprises’ stock market perfor- mance?—An empirical study from China[J]. Sustainability, 2019, 11(17): 4765.

[19]. Stotz O. Expected and realized returns on stocks with high-and low-ESG exposure[J]. Journal of Asset Management, 2021, 22(2): 133-150.

[20]. Gerard B. ESG and socially responsible investment: A critical review[J]. Beta, 2019, 33(1): 61-83.

[21]. Plagge J C, Grim D M. Have investors paid a performance Price? Examining the behavior of ESG equity funds[J]. The Journal of Portfolio Management, 2020, 46(3): 123-140.

[22]. Zhang X, Zhao X, He Y. Does it pay to be responsible? The performance of ESG investing in China[J]. Emerging Markets Finance and Trade, 2022: 1-28.

[23]. Al Hawaj A Y, Buallay A M. A worldwide sectorial analysis of sustainability reporting and its impact on firm performance[J]. Journal of Sustainable Finance & Investment, 2022, 12(1): 62-86.


Cite this article

Qin,K. (2023). ESG Rating, Investor Attention, and Stock Returns in China December 2022. Advances in Economics, Management and Political Sciences,22,305-313.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 2023 International Conference on Management Research and Economic Development

ISBN:978-1-915371-87-4(Print) / 978-1-915371-88-1(Online)
Editor:Canh Thien Dang, Javier Cifuentes-Faura
Conference website: https://2023.icmred.org/
Conference date: 28 April 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.22
ISSN:2754-1169(Print) / 2754-1177(Online)

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References

[1]. AMAC. Special Survey Report on ESG Investment in China's Fund Indus- try(2019)(Chinese). From:

[2]. https://www.amac.org.cn/researchstatistics/report/gmjjhybg/202003/P02020033070643000 8626.pdf

[3]. Pástor Ľ, Stambaugh R F, Taylor L A. Sustainable investing in equilibrium[J]. Journal of Financial Economics, 2021, 142(2): 550-571.

[4]. Pástor Ľ, Stambaugh R F, Taylor L A. Dissecting green returns[J]. Journal of Financial Economics, 2022, 146(2): 403-424.

[5]. Hong H, Kacperczyk M. The price of sin: The effects of social norms on markets[J]. Jour- nal of financial economics, 2009, 93(1): 15-36.

[6]. Garvey G T, Iyer M, Nash J. Carbon footprint and productivity: does the “E” in ESG cap- ture efficiency as well as environment[J]. J Invest Manag, 2018, 16(1): 59-69.

[7]. In S Y, Rook D, Monk A. Integrating alternative data (also known as ESG data) in invest- ment decision making[J]. Global Economic Review, 2019, 48(3): 237-260.

[8]. Times F. The ethical investment boom. James Kynge, September 7[J]. 2017

[9]. Bennani L, Le Guenedal T, Lepetit F, et al. How ESG Investing has impacted the asset pricing in the equity market[J]. Available at SSRN 3316862, 2018.

[10]. Pedersen L H, Fitzgibbons S, Pomorski L. Responsible investing: The ESG-efficient fron- tier[J]. Journal of Financial Economics, 2021, 142(2): 572-597.

[11]. Bolton P, Kacperczyk M. Do investors care about carbon risk?[J]. Journal of financial economics, 2021, 142(2): 517-549.

[12]. Fama, Eugene F., and Kenneth R. French. "The cross‐section of expected stock returns." the Journal of Finance 47.2 (1992): 427-465.

[13]. Maruthi G D, Rashmi R. Green Manufacturing: It's Tools and Techniques that can be im- plemented in Manufacturing Sectors[J]. Materials Today: Proceedings, 2015, 2(4-5): 3350- 3355.

[14]. Omer A M. Energy, environment and sustainable development[J]. Renewable and sustain- able energy reviews, 2008, 12(9): 2265-2300.

[15]. Bridge G. Contested terrain: mining and the environment[J]. Annual review of Environ- ment and Resources, 2004, 29: 0_2.

[16]. Litman T, Burwell D. Issues in sustainable transportation[J]. International Journal of Global Environmental Issues, 2006, 6(4): 331-347.

[17]. e.g., Pederson, et al, 2020

[18]. Deng X, Cheng X. Can ESG indices improve the enterprises’ stock market perfor- mance?—An empirical study from China[J]. Sustainability, 2019, 11(17): 4765.

[19]. Stotz O. Expected and realized returns on stocks with high-and low-ESG exposure[J]. Journal of Asset Management, 2021, 22(2): 133-150.

[20]. Gerard B. ESG and socially responsible investment: A critical review[J]. Beta, 2019, 33(1): 61-83.

[21]. Plagge J C, Grim D M. Have investors paid a performance Price? Examining the behavior of ESG equity funds[J]. The Journal of Portfolio Management, 2020, 46(3): 123-140.

[22]. Zhang X, Zhao X, He Y. Does it pay to be responsible? The performance of ESG investing in China[J]. Emerging Markets Finance and Trade, 2022: 1-28.

[23]. Al Hawaj A Y, Buallay A M. A worldwide sectorial analysis of sustainability reporting and its impact on firm performance[J]. Journal of Sustainable Finance & Investment, 2022, 12(1): 62-86.