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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title ESG Factors in the European Stock Market
Organization Unit
  • Yaejin Kim
  • Kjell G. Nyborg
  • Benjamin Schneider
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 60
Date 2022
Abstract Text This study investigates the relationship between ESG performance and firms’ financial value by using two empirical approaches based on the ESG scores: the asset pricing models (Fama French factor model), and the classical event study methodology. First, the ESG-based factor models show that adding separate E, S, and G factors into the factor model increases the explanatory power of the factor model. However, the ESG factor model shows that ‘brown’ firms overperform ‘green’ firms, but the Long-short portfolio strategy of buying the best ESG firms and short-selling the worst ESG firms brings positive cumulative returns. Second, the comparison of stock market reaction to the ESG rating changes before and after the Paris Agreement shows that ESG might be valuable information. However, the market reacts strongly negatively to ESG upgrades and weakly negatively to ESG downgrades after the PA, and the abnormal returns are statistically insignificant. This study, therefore, confirms that ESG can be a risk factor but that its profitability still lacks sufficient evidence.
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