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ESG Portfolios and Stock Returns: An analysis of ESGs effect on financial performance

Franzén, Filip LU (2019) NEKP01 20191
Department of Economics
Abstract
In recent years sustainable investment has increased enormously, and firms that are considered to have high social responsibility has gained interest from investors. However, if these firms have higher financial performance or not is still unclear, and researchers still have split opinions on the relationship. The purpose of this research is to analyze this relationship, with data collected from the S&P 500 with a period of 2002-2017. Using the ASSET 4 Environmental, Social, and Governance (ESG) score to conduct a panel data regression and a Fama-French Factor-Five study, with constructing different portfolios on the ESG score. Results indicate that a portfolio constructed on the low ESG score outperforms the portfolio with high ESG score,... (More)
In recent years sustainable investment has increased enormously, and firms that are considered to have high social responsibility has gained interest from investors. However, if these firms have higher financial performance or not is still unclear, and researchers still have split opinions on the relationship. The purpose of this research is to analyze this relationship, with data collected from the S&P 500 with a period of 2002-2017. Using the ASSET 4 Environmental, Social, and Governance (ESG) score to conduct a panel data regression and a Fama-French Factor-Five study, with constructing different portfolios on the ESG score. Results indicate that a portfolio constructed on the low ESG score outperforms the portfolio with high ESG score, through both higher Sharpe ratio and the portfolio with high ESG has negative abnormal returns. Another interesting result is that the Financial Crisis of 2008-2009 disrupted the ESG portfolios, from changing their performance and the significance of ESG effect on stock performance. (Less)
Please use this url to cite or link to this publication:
author
Franzén, Filip LU
supervisor
organization
course
NEKP01 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
ESG, Fama-French Five-Factor model, HML Portfolio, S&P 500, Financial Crisis
language
English
id
8981910
date added to LUP
2019-08-08 10:25:51
date last changed
2019-08-08 10:25:51
@misc{8981910,
  abstract     = {{In recent years sustainable investment has increased enormously, and firms that are considered to have high social responsibility has gained interest from investors. However, if these firms have higher financial performance or not is still unclear, and researchers still have split opinions on the relationship. The purpose of this research is to analyze this relationship, with data collected from the S&P 500 with a period of 2002-2017. Using the ASSET 4 Environmental, Social, and Governance (ESG) score to conduct a panel data regression and a Fama-French Factor-Five study, with constructing different portfolios on the ESG score. Results indicate that a portfolio constructed on the low ESG score outperforms the portfolio with high ESG score, through both higher Sharpe ratio and the portfolio with high ESG has negative abnormal returns. Another interesting result is that the Financial Crisis of 2008-2009 disrupted the ESG portfolios, from changing their performance and the significance of ESG effect on stock performance.}},
  author       = {{Franzén, Filip}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{ESG Portfolios and Stock Returns: An analysis of ESGs effect on financial performance}},
  year         = {{2019}},
}