Volatility and Herding Bias on ESG Leaders’ Portfolios Performance

Nektarios Gavrilakis and Christos Floros ()
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Nektarios Gavrilakis: Department of Accounting and Finance, Hellenic Mediterranean University, 71410 Heraklion, Crete, Greece
Christos Floros: Department of Accounting and Finance, Hellenic Mediterranean University, 71410 Heraklion, Crete, Greece

JRFM, 2024, vol. 17, issue 2, 1-22

Abstract: We here analyze the factor loadings given by the CAPM, the Fama–French three (FF3), and the five-factor model (FF5), and test the performance and the validity of adding two more factors (volatility and dispersion of returns) to the FF5 factor model of European index-based ESG leaders’ portfolios. Our ESG leaders’ portfolios generated significant negative alphas during 2012–2022, corroborating the literature’s negative argument. The negative abnormal returns of ESG leaders’ portfolios are homogeneous across the three ESG pillars. We conclude that European ESG leaders’ portfolios are biased toward large cap and value stocks with robust operating profitability and against aggressive investments. As robustness tests, we examine Global ESG leaders’ index-based portfolios, producing the same results but with reduced importance in some loading factors like profitability and investment strategy. Furthermore, we deduced that European and Global ESG leaders’ portfolios tilt towards volatility and herding bias.

Keywords: ESG; Jensen’s alpha; volatility; herding (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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