{"title":"ESG rating disagreement, volatility, and stock returns","authors":"Qingduo Zeng, Yang Xu, Mengshu Hao, Meiqi Gao","doi":"10.1016/j.frl.2024.106602","DOIUrl":null,"url":null,"abstract":"We present a rational expectation equilibrium model to explore how ESG rating disagreement impacts stock returns. Our findings reveal that high disagreement in ESG rating is associated with high return volatility risk, which potentially leads to increased stock returns. Our empirical results confirm a positive impact of ESG disagreement on stock returns, reinforcing our theoretical findings. The mechanism tests suggest that ESG disagreement enhances stock returns by amplifying idiosyncratic return volatility. Overall, our research sheds light on how ESG disagreement affects stock returns through market microstructure, and offers valuable insights into the role that ESG disagreement plays in ESG investing.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"23 1","pages":""},"PeriodicalIF":7.4000,"publicationDate":"2024-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Finance Research Letters","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1016/j.frl.2024.106602","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We present a rational expectation equilibrium model to explore how ESG rating disagreement impacts stock returns. Our findings reveal that high disagreement in ESG rating is associated with high return volatility risk, which potentially leads to increased stock returns. Our empirical results confirm a positive impact of ESG disagreement on stock returns, reinforcing our theoretical findings. The mechanism tests suggest that ESG disagreement enhances stock returns by amplifying idiosyncratic return volatility. Overall, our research sheds light on how ESG disagreement affects stock returns through market microstructure, and offers valuable insights into the role that ESG disagreement plays in ESG investing.
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