This study is the first to employ calendar-time portfolio methodology to investigate the impact of 748 ESG rating changes on stock returns of US firms over 2016-2021. While ESG rating upgrades lead to positive yet inconsistently significant abnormal returns of 0.5% per month, downgrades are detrimental to stock performance, leading to statistically significant monthly risk-adjusted returns of -1.2% on average. These findings are more pronounced for ESG leaders than laggards and are robust to various asset-pricing model specifications. The effects of ESG rating levels are modest, with ESG laggards underperforming in risk-adjusted terms.
|Journal||Finance Research Letters|
|Publication status||Accepted/In press - 6 Jul 2021|