ESG risk and returns implied by demand-based asset pricing models

Chi Zhang, Xinyang Li, Andrea Tamoni, Misha Beek and Andrew Ang ()
Additional contact information
Chi Zhang: BlackRock, Inc.
Xinyang Li: BlackRock, Inc.
Andrea Tamoni: Rutgers Business School
Misha Beek: BlackRock, Inc.
Andrew Ang: BlackRock, Inc.

Journal of Asset Management, 2024, vol. 25, issue 3, No 1, 203-221

Abstract: Abstract We investigate how changes in demand for Environment, Social and Governance (ESG) characteristics affect stock prices. We consider three scenarios: increased demand for ESG characteristics by investors, shifts in assets under management from institutions with low demand for ESG characteristics to those with high demand, and changes in the ESG characteristics of the stocks themselves. To compute the effects of the scenarios, we use a demand-based asset pricing model which is calibrated to individual stock-level holdings of institutional investors. We find that these scenarios lead to significantly different returns of stocks with different ESG characteristics.

Keywords: Sustainability; ESG; Equilibrium; Demand-based asset pricing; Stock predictability; Scenarios (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41260-024-00354-3

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