The Pricing of ESG: Evidence From Overnight Return and Intraday Return

Abstract

By featuring the link of investor heterogeneity to the persistence of the overnight and intraday components of returns, we examine the ESG–overnight (intraday) alpha relation in the Chinese stock market. The empirical results show that ESG score has a significantly negative effect on the expected stock overnight returns in Fama–MacBeth regression. Consistently, given the biggest market capitalization and the least illiquidity subsamples, the trading strategies by going long (short) the top (bottom) ESG quintile would yield negative profits. In addition, we conduct the implication of the ESG pricing by dividing the full sample into green stock subsample and sin stock subsample, and the empirical results present that the ESG pricing is pervasive of the green-type stocks. These conclusions verify the pricing of ESG and support the conjecture that green stocks have lower expected returns because ESG investors value sustainability.

The Benefits of Workforce Well-Being on Profitability in Listed Companies: A Comparative Analysis between Europe and Mexico from an ESG Investor Perspective

“…Considering the above, few works tested the relationship estimating the relationship between ESG scores and market risk levels. In this sense, it is important to point out that several works have found a negative or a non-significant relationship, as can be seen in Bekaert et al (2023), Martínez et al (2022), Korinth and Lueg (2022), Xu et al (2022), Shakil (2022), Liu et al (2022), Feng et al (2022), De Marco and Vuuren (2022), Gavira-Durón et al (2020), andHan et al (2016). These results imply that the better the ESG practices in a given company, the lower its market risk.…”