The Effects of ESG Scores and ESG Momentum on Stock Returns and Volatility: Evidence from U.S. Markets

Luis Jacob Escobar-Saldívar (), Dacio Villarreal-Samaniego and Roberto J. Santillán-Salgado
Additional contact information
Luis Jacob Escobar-Saldívar: EGADE Business School, Tecnologico de Monterrey, San Pedro Garza García 66269, Mexico
Dacio Villarreal-Samaniego: Department of Economics and Managerial Sciences, Tecnológico Nacional de México, Hidalgo del Parral 33850, Mexico
Roberto J. Santillán-Salgado: EGADE Business School, Tecnologico de Monterrey, San Pedro Garza García 66269, Mexico

JRFM, 2025, vol. 18, issue 7, 1-21

Abstract: The impact of Environmental, Social, and Governance (ESG) scores on financial performance remains a subject of debate, as the literature reports mixed evidence regarding their effect on stock returns. This research aims to examine the relationship between ESG ratings and the change in ESG scores, or ESG Momentum, concerning both returns and risk of a large sample of stocks traded on U.S. exchanges. The study examined a sample of 3856 stocks traded on U.S. exchanges, considering 20 years of quarterly data from December 2002 to December 2022. We applied multi-factor models and tested them through pooled ordinary, fixed effects, and random effects panel regression methods. Our results show negative relationships between ESG scores and stock returns and between ESG Momentum and volatility. Contrarily, we find positive associations between ESG Momentum and returns and between ESG scores and volatility. Although high ESG scores are generally associated with lower long-term stock returns, an increase in a company’s ESG rating tends to translate into immediate positive returns and reduced risk. Accordingly, investors may benefit from strategies that focus on companies actively improving their ESG performance, while firms themselves stand to gain by signaling continuous advancement in ESG-related areas.

Keywords: ESG scores; ESG momentum; stock returns; return volatility; panel regression (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/18/7/367/pdf (application/pdf)
https://www.mdpi.com/1911-8074/18/7/367/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:367-:d:1692779

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().