ESG tail risk: The Covid-19 market crash analysis

Mohammadhossein Lashkaripour

Finance Research Letters, 2023, vol. 53, issue C

Abstract: This paper shows that strong ESG taste leads to higher tail risk in high-ESG (green) stocks compared to low-ESG (brown) stocks during market crashes. In crash episodes, strong ESG tastes induce investors to hold green stocks despite negative expected returns. Logically, the non-pecuniary benefit from ESG investing compensates for the dis-utility of financial loss. This expectation of price declines makes put options on green stocks more expensive and increases tail risk. I conduct a pseudo-causal analysis on the COVID-19 market crash that supports these theoretical findings. My findings provide novel implications for portfolio selection and risk management with ESG consideration.

Keywords: ESG; Green; Tail risk; Ambiguity; Non-pecuniary benefit (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007747

DOI: 10.1016/j.frl.2022.103598

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