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 series (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
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):License LogoDeutsches Urheberrecht