ESG Controversies: How Do They Affect Market Returns and Individual Asset Choices?
(2022) Behavioural Finance Working Group Conference 2022 — Location: Londres (9.June.2022)
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- Abstract
- This paper examines how the financial markets and individual investors react to ESG controversies from 2003 to 2021. First, we use an event study methodology to analyze the market responses to 7,500 controversies affecting 2,826 companies, in returns and volumes. Second, we analyze how individual investors rebalance their portfolios after an ESG controversy. This second analysis relies on the trading records of 20,935 individual investors of a Belgian brokerage house. At the market level, abnormal returns are significantly negative during the week of the event (t) and this effect also continues to be visible the week after the event (t+1). However, we notice that the impact of ESG controversies on abnormal returns seems to be stronger regarding the events occurred during the second half of our sample period. We see no such difference between time periods when looking at the abnormal volume of traded shares during the event windows. At the individual level, retail investors significantly decrease their portfolio weights in stocks that experience an ESG controversy during the week of the event, this tendency again being stronger in the second sub-sample period. They also tend to decrease their portfolio weights in the whole industry that the company experiencing an ESG controversy belongs to. This paper is a work in progress.
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Citations
De Winne, R., & Petkeviciute, A. (2022). ESG Controversies: How Do They Affect Market Returns and Individual Asset Choices? Behavioural Finance Working Group Conference 2022, Londres. https://hdl.handle.net/2078.5/105742