Evaluating ESG Investment Profitability: From the Perspective of Sophistication in Investment Decision-Making

Xiaomeng Lu, Xianjun Zhang, Fusen Guo and Feng Li

Finance Research Letters, 2024, vol. 69, issue PA

Abstract: Environmental, Social, and Governance (ESG) investments are widely discussed in the stock market. Further, the debate on ESG investment profitability has garnered significant scholarly attention. This study examines the relationship between ESG investments and equity investment return (EIR) and whether this relationship is affected by investors' sophistication. The results suggest that while ESG investors generally gain relatively lower profits than others, sophisticated investors, characterized by greater financial knowledge, diversified investments, contrarian investment strategies, and not being influenced by familiar biases, can mitigate these lower returns. These findings enhance our understanding of ESG investments and offer valuable insights to guide investors in making sophisticated ESG investment decisions.

Keywords: ESG investment; Investor sophistication; Equity investment return (search for similar items in EconPapers)
JEL-codes: D81 G11 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011346

DOI: 10.1016/j.frl.2024.106105

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