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

Savva Shanaev () and Binam Ghimire

Finance Research Letters, 2022, vol. 46, issue PA

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.

Keywords: ESG; ESG investing; ESG rating; Socially responsible investment; Calendar-time portfolio; Event study (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003342

DOI: 10.1016/j.frl.2021.102302

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