ESG Preference, Institutional Trading, and Stock Return Patterns

Jie Cao; Sheridan Titman; Xintong Zhan; Weiming Elaine Zhang

doi:10.1017/s0022109022000916

Journal of Financial and Quantitative Analysis Vol. 58 No. 5 2023

ESG Preference, Institutional Trading, and Stock Return Patterns

Jie Cao^{1,2,3,4,5,6,7}; Sheridan Titman^{1,2,3,4,5,6,7}; Xintong Zhan^{1,2,3,4,5,6,7}; Weiming Elaine Zhang^{1,2,3,4,5,6,7}

¹ National Bureau of Economic Research · ² Hong Kong Polytechnic University · ³ Chinese University of Hong Kong · ⁴ Korea University · ⁵ The University of Texas at Austin · ⁶ Michigan State University · ⁷ Tsinghua University

open access

Abstract

Socially responsible (SR) institutions tend to focus more on the environmental, social, and governance (ESG) performance and less on quantitative signals of value. Consistent with this difference in focus, we find that SR institutions react less to quantitative mispricing signals. Our evidence suggests that the increased focus on ESG may have influenced stock return patterns. Specifically, abnormal returns associated with these mispricing signals are greater for stocks held more by SR institutions. The link between SR ownership and the efficacy of mispricing signals only emerges in recent years with the rise of ESG investing, and is significant only when there are arbitrage-related funding constraints.

DOI: 10.1017/s0022109022000916
Volume: 58
Issue: 5
Pages: 1843-1877
Language: en
Sources: bibtex:phds-export.bib openalex crossref

ESG Preference, Institutional Trading, and Stock Return Patterns

Abstract

Cite