The salience of ESG ratings for stock pricing: Evidence from (potentially) confused investors

Aleksandra Rzeźnik, Kathleen Weiss Hanley and Loriana Pelizzon ()

No 310, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We exploit a modification to Sustainalytics' environmental, social, and governance (ESG) rating methodology, which is subsequently adopted by Morningstar, to study whether ESG ratings are salient for stock pricing. We show that the inversion of the rating scale but not new information leads some investors to make incorrect assessments about the meaning of the change in ESG ratings. They buy (sell) stocks they misconceive as ESG upgraded (downgraded) even when the opposite is true. This trading behavior exerts transitory price pressure on a↵ected stocks. Our paper highlights the importance of ESG ratings for investors and consequently for asset prices.

Keywords: Corporate social responsibility; ESG rating agencies; sustainable investments; socially responsible investing; ESG; portfolio choice (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 G59 M14 Q5 (search for similar items in EconPapers)
Date: 2021, Revised 2021
New Economics Papers: this item is included in nep-cwa, nep-env and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/243279/1/safe-wp-310-rev2021-09.pdf (application/pdf)

Related works:
Working Paper: The Salience of ESG Ratings for Stock Pricing: Evidence From (Potentially) Confused Investors (2021)
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:zbw:safewp:310

DOI: 10.2139/ssrn.3801703

Access Statistics for this paper

More papers in SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().