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

Shanaev, Savva; Ghimire, Binam

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.

Citation

SHANAEV, S. and GHIMIRE, B. 2022. When ESG meets AAA: the effect of ESG rating changes on stock returns. Finance research letters [online], 46(A), article number 102302. Available from: https://doi.org/10.1016/j.frl.2021.102302

• Journal Article Type: Article
• Acceptance Date: Jul 6, 2021
• Online Publication Date: Jul 10, 2021
• Publication Date: May 31, 2022
• Deposit Date: Jun 13, 2024
• Publicly Available Date: Jun 13, 2024
• Journal: Finance research letters
• Print ISSN: 1544-6123
• Electronic ISSN: 1544-6131
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 46
• Issue: A
• Article Number: 102302
• DOI: https://doi.org/10.1016/j.frl.2021.102302
• Keywords: ESG; ESG investing; ESG rating; Socially responsible investment; Calendar-time portfolio; Event study
• Public URL: https://rgu-repository.worktribe.com/output/2078435