The non-linear ESG premium

Runfeng Yang, Juan-Angel Jimenez-Martin and Massimiliano Caporin

Quantitative Finance, 2025, vol. 25, issue 5, 817-840

Abstract: We examine if the ESG performance is being priced in the cross-section of stock returns in a non-linear manner. We consider square and cubic forms of ESG scores when estimating the ESG premium. We find that the premiums from ESG, E, and S scores deviate from linearity, the extent of which depends on types of ESG scores and sample periods. We associate the non-linearity with the cross-sectional distribution of ESG scores. We find that investors ESG sentiment interacts with the cross-sectional distribution of ESG scores in driving linear ESG factors. A change in the ESG data provider will also change the characteristic of non-linear ESG factors. However, the non-linearity still exists using the common sample from different data providers. The above finding also applies in the corporate bond market, in the European market and when extending the sample back to 2004.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2025.2492794 (text/html)
Access to full text is restricted to subscribers.

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:taf:quantf:v:25:y:2025:i:5:p:817-840

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2025.2492794

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().