Unlocking ESG Premium from Options

Jie Cao, Amit Goyal, Xintong Zhan and Weiming Elaine Zhang
Additional contact information
Jie Cao: The Chinese University of Hong Kong (CUHK) - CUHK Business School
Xintong Zhan: The Chinese University of Hong Kong (CUHK) - CUHK Business School
Weiming Elaine Zhang: The Chinese University of Hong Kong (CUHK)

No 21-39, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We find that option expensiveness, as measured by implied volatility, is higher for low-ESG stocks, showing that investors pay a premium in the option market to hedge ESG-related uncertainty. Using delta-hedged option returns, we estimate this ESG premium to be about 0.3% per month. All three components of ESG contribute to option pricing. The effect of ESG performance heightens after the announcement of Paris Agreement, after speeches of Greta Thunberg, and in the aftermath of Me-Too movement. We find that investors pay ESG premium to hedge volatility, jump, and other higher moment risks. The influence of ESG on option premia is stronger for firms that are closer to end-consumers, facing severer product competition, with higher investors’ ESG awareness, and without corporate hedging activity.

Keywords: ESG; implied volatility; delta-hedged option return (search for similar items in EconPapers)
JEL-codes: G12 G14 G41 M14 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2021-07
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3878123 (application/pdf)

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:chf:rpseri:rp2139

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().