The Effectiveness of News‐Based ESG Sentiment for Predicting Stock Returns: Evidence From China

Haixu Yu, Chuanyu Liang, Zhaohua Liu and Xue Cui

Accounting and Finance, 2025, vol. 65, issue 3, 2724-2732

Abstract: This study examines the impact of ESG sentiment on the forecast of excess stock returns. We construct a monthly ESG sentiment index (SESG) that captures the tone of ESG news coverage, distinguishing between positive and negative sentiment. Our findings indicate that SESG predictions of market excess returns are statistically significant in both in‐sample and out‐of‐sample analyses, with stronger predictive power during high sentiment periods compared to low sentiment periods. Furthermore, economic tests demonstrate that SESG generates a high Sharpe ratio and utility gains for investors, highlighting its potential economic benefits as a predictor in the increasingly important field of ESG investments.

Date: 2025
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https://doi.org/10.1111/acfi.70015

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Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:65:y:2025:i:3:p:2724-2732

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