Is ESG a Novel Pricing Risk Factor for the Chinese Stock Markets during COVID-19?

Weitao Zhou

doi:10.54254/2754-1169/3/2022892

Research Article

Open access

Published on 21 March 2023

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Is ESG a Novel Pricing Risk Factor for the Chinese Stock Markets during COVID-19?

Weitao Zhou *^,1,

¹ King’s Business School, King’s College London, London, WC2R 2LS, United Kingdom

* Author to whom correspondence should be addressed.

https://doi.org/10.54254/2754-1169/3/2022892

Abstract

This paper examines the potential of ESG as a novel risk factor, explaining different industry portfolio returns from 2018 to 2021 (including two years of the unique COVID-19 window). The ESG factor(SMU) is designed as the spread between the top 30% high-ESG(Sustainable) group and the bottom 30% low-ESG(Unsustainable) group. Based on empirical evidence from the Chinese stock markets, this paper finds: 1) The ESG factor significantly explains industry returns along with Fama-French three factors; 2) Sustainable portfolios consistently outperform unsustainable groups, particularly during the pandemic period; 3) Modified models with ESG factors slightly outperform the classic FF-3 model according to the GRS F-test; and 4) Industry portfolio returns during COVID-19 are surprisingly higher than in normal times, most likely due to the central bank and government’s Quantitative Easing(QE) policies.

Keywords

ESG Risk Factor, Asset Pricing, China Stock Markets, Fama-French models., COVID-19

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References

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Cite this article

Zhou,W. (2023). Is ESG a Novel Pricing Risk Factor for the Chinese Stock Markets during COVID-19?. Advances in Economics, Management and Political Sciences,3,794-802.

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 6th International Conference on Economic Management and Green Development (ICEMGD 2022), Part Ⅰ

Conference website: https://www.icemgd.org/

ISBN：978-1-915371-15-7(Print) / 978-1-915371-16-4(Online)

Conference date: 6 August 2022

Editor：Javier Cifuentes-Faura, Canh Thien Dang

Series: Advances in Economics, Management and Political Sciences

Volume number: Vol.3

ISSN：2754-1169(Print) / 2754-1177(Online)

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