Systematic ESG exposure and stock returns: Evidence from the United States during the 1991–2019 period |
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Authors: | Aymen Karoui Duc Khuong Nguyen |
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Institution: | 1. Glendon College, York University, Toronto, Ontario, Canada;2. IPAG Business School, Paris, France
International School, Vietnam National University, Hanoi, Vietnam |
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Abstract: | Using a sample of US stocks over the period 1991–2019, we test whether stocks with high exposure to a social index exhibit high returns. Using a univariate analysis, our in-sample results show that stocks with high sensitivities to the MSCI KLD 400 Social Index underperform stocks with low sensitivities by an annual risk-adjusted performance of 7.02%. The negative premium is also larger in the post-crisis period of 2007–2019 and is equal to 10.25%. The out-of-sample results offer, however, only weak evidence of such a finding, with a risk-adjusted performance difference of merely −0.84% over the full sample period and no significant differences between the pre-crisis and post-crisis periods. In the multivariate regression, we find evidence of a negative relationship between exposure to the social index and stock performance. Moreover, we find that stocks with high exposure to the social index display a low corporate social responsibility score, a high Tobin’s Q, high long-term debt, a large size, high total risk, a high market beta, a high SMB coefficient, a low HML coefficient, and a small MOM coefficient. |
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Keywords: | corporate social responsibility ESG exposure stock returns systematic exposure |
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