How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market

Qianqian Du, Wanxuan Su, Dawei Liang and Luying Wang

Economic Modelling, 2023, vol. 124, issue C

Abstract: This study contributes to the ongoing debate on whether and how green strategy improves shareholder value. Using listed firms in the Chinese A-share market from 2008 through 2020, we find that a sustainability-based investment strategy by longing green stocks and shorting brown stocks can generate above 4% abnormal returns annually. Further investigation shows that investors' preference for green stocks increases the valuation of such stocks and contributes to the profitability of the trading strategy. We construct a green taste measure using textual analysis of over 400,000 analyst reports, finding that when agents' green tastes increase unexpectedly, the sustainability-based trading strategy generates higher returns in the future. Our findings shed light on the importance of investors' green preference on firms’ valuation.

Keywords: Green tastes; ESG; Textual analysis; Market reaction (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:124:y:2023:i:c:s0264999323001049

DOI: 10.1016/j.econmod.2023.106292

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