Does ESG explain stock returns? Evidence from Chinese stock markets

Zili Shang, Bo Yu and Keith S.K. Lam

Finance Research Letters, 2025, vol. 79, issue C

Abstract: We construct a new interaction-mitigated ESG measure to examine the ESG–return relation in Chinese stock markets. Our results suggest that the new ESG measure has significant explanatory power for stock excess returns at both firm characteristic and systematic factor levels. In addition, our results demonstrate heterogeneity in the explanatory power of the new measure on excess returns, with the relation being significant for small firms and those with low asset growth (AG), earnings-to-price (EP), and high return on equity (ROE) ratios, but much weaker for large firms and those with high AG, EP, and low ROE ratios.

Keywords: ESG measure; Asymptotic Principal Component Analysis; Fama–MacBeth cross-sectional regressions; Chinese stock markets (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325004775

DOI: 10.1016/j.frl.2025.107214

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