Contemporaneous ESG ratings and idiosyncratic stock risk: Empirical evidence on measures of market consensus and dispersion

Andreas Oehler and Matthias Horn

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: We analyze the relation between ESG ratings and idiosyncratic stock risk under consideration of the mean of the ratings of different agencies (market consensus) as well as measures of ESG rating dispersion (market dispersion). We include five ESG ratings and stocks from Asia-Pacific, Europe, Japan, and North America. The findings reveal a mixed picture. The overall tendency is that higher mean ESG ratings are either associated with lower idiosyncratic risk or no significant effect. ESG rating dispersion, if at all, is only sporadically related to idiosyncratic stock risk. We do not find indications that considering ESG ratings harms investor performance.

Keywords: ESG rating; Idiosyncratic risk; Rating dispersion; Differences in opinion; Sin stocks (search for similar items in EconPapers)
JEL-codes: G11 G12 G24 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025006343

DOI: 10.1016/j.iref.2025.104471

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