EconPapers    
Economics at your fingertips  
 

Option traders are concerned about climate risks: ESG ratings and short-term sentiment

Jansson M. Ford, Sebastian A. Gehricke and Jin E. Zhang

Journal of Behavioral and Experimental Finance, 2022, vol. 35, issue C

Abstract: This paper examines the potential relationship between ESG factors and short-term investor sentiment derived from option markets. We test whether ESG factors are related to short-term investor sentiment for US companies, using portfolio sorts and dynamic panel regressions. The results reveal firstly, that the difference between the highest and lowest ESG, ‘E’, ‘S’, and ‘G’ rated portfolios is negative and significant, showing that those firms in the highest ESG rated portfolio are receiving significantly more optimistic sentiment than those in the lowest portfolio. Secondly, we show that only the ‘E’ score and ESG controversies score are significant factors in option traders’ sentiment in our multivariate setting, with better scores in these factors significantly improving sentiment. These results persist within a sector analysis, in the materials, consumer discretionary, communications, utilities, and real estate sectors. This paper shows that the most sophisticated investors (options traders) are considering environmental risks of individual companies.

Keywords: ESG; CSR; Sentiment; Put–call ratio; Climate risks (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635022000363

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:35:y:2022:i:c:s2214635022000363

DOI: 10.1016/j.jbef.2022.100687

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:beexfi:v:35:y:2022:i:c:s2214635022000363