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Erschienen in:
2022 | OriginalPaper | Buchkapitel
Expected and Realized Returns on Stocks with High- and Low-ESG Exposure
verfasst von : Olaf Stotz
Erschienen in: Risks Related to Environmental, Social and Governmental Issues (ESG)
Verlag: Springer Nature Switzerland
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Empirically, stocks with a good environmental, social, or governance (ESG) rating tend to earn higher returns than stocks with a low rating. In contrast, the expected returns of high-ESG stocks are primarily lower than those of low-ESG stocks. The difference between realized and expected returns in the ESG domain constitutes a puzzle which we will address in this paper. Applying a return decomposition, we find that the puzzle can be explained by discount rate news. We find that discount rates of high-ESG stocks have fallen relative to low-ESG stocks. However, discount rate news does not reflect changes in risk; rather, discount rate news is systematically related to the demand of investors who have ESG preferences.