The Impact of Green Diamond Reward Rating on Liquidity Risk of ESG Exchange Traded Funds (ETFs)

Yamei Zhao ()
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Yamei Zhao: Wenzhou-Kean University, School of Accounting and Finance, College of Business and Public Management

A chapter in Proceedings of the 8th International Conference on Financial Innovation and Economic Development (ICFIED 2023), 2023, pp 479-485 from Springer

Abstract: Abstract It is a puzzle that whether environment, social, and governance (ESG) exchange-traded fund (ETF) is a better choice for investors than buying conventional ETFs and whether ESG ETFs with higher green diamond reward ratings could have lower liquidity risk, especially during the recession. By regression analysis and fixed effect analysis, this study focuses on 83 ESG ETFs compared with 83 matched conventional ETFs and 10 anti-ESG ETFs. It collects ESG ETFs liquidity data from the WRDS database and ESG ETF lists from the Bloomberg terminal between 2016Q1 and 2022Q8. As robustness checks, the result holds for the fixed-effect model, additional measure, and two-stage least square regression. We find that there is a negative relationship between ESG ETFs’ green diamond reward rating and liquidity risk. We also find that ESG ETFs have less liquidity risk compared to conventional ETFs, especially during the financial crisis. The findings of this study provide insightful guidance for investors in making an investment decision and support the hypothesis that ESG fund management could add value.

Keywords: ESG exchanged traded funds; liquidity risk; green diamond reward rating; risk management (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-142-5_55

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DOI: 10.2991/978-94-6463-142-5_55

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