The salience of ESG ratings for stock pricing: evidence from (potentially) confused investors
- We exploit the a modification to Sustainanlytics’ environmental, social, and governance (ESG) rating methodology, which is subsequently adopted by Morningstar, to study whether ESG ratings are salient for stock pricing. We show that the inversion of the rating scale but not new information leads some investors to make incorrect assessments about the meaning of the change in ESG ratings. They buy (sell) stocks they misconceive as ESG upgraded (downgraded) even when the opposite is true. This trading behavior exerts transitory price pressure on affected stocks. Our paper highlights the importance of ESG ratings for investors and consequently for asset prices.
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| Author: | Aleksandra Rzeźnik, Kathleen Weiss Hanley, Loriana PelizzonORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-582731 |
| DOI: | https://doi.org/10.2139/ssrn.3801703 |
| Parent Title (English): | SAFE working paper ; No. 310 |
| Series (Serial Number): | SAFE working paper (310) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2021 |
| Year of first Publication: | 2021 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2021/07/30 |
| Tag: | Corporate Social Responsibility; ESG; ESG Rating Agencies; Portfolio choice; Socially responsible investing; Sustainable Investments |
| Issue: | June 24, 2021 |
| Page Number: | 59 |
| HeBIS-PPN: | 485411040 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
