When ESG meets AAA: The effect of ESG rating changes on stock returns

Savva Shanaev; Binam Ghimire

doi:10.1016/j.frl.2021.102302

When ESG meets AAA: The effect of ESG rating changes on stock returns

Savva Shanaev^*, Binam Ghimire

^*Corresponding author for this work

Accounting and Financial Management Department

Research output: Contribution to journal › Article › peer-review

94 Citations (Scopus)

Abstract

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.

Original language	English
Article number	102302
Journal	Finance Research Letters
Volume	46
Issue number	Part A
Early online date	10 Jul 2021
DOIs	https://doi.org/10.1016/j.frl.2021.102302
Publication status	Published - 1 May 2022

Keywords

event study
ESG
ESG investing
ESG rating
socially responsible investment
calendar-time portfolio

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10.1016/j.frl.2021.102302

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abstract = "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. ",

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When ESG meets AAA: The effect of ESG rating changes on stock returns

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Keywords

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