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Article
Publication date: 2 January 2023

Johannes Kabderian Dreyer, Mateus Moreira, William T. Smith and Vivek Sharma

This paper aims to investigate whether environmental, social and governance (ESG) practices influence stock returns in the US stock market, looking at the period from 2002 to 2020.

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Abstract

Purpose

This paper aims to investigate whether environmental, social and governance (ESG) practices influence stock returns in the US stock market, looking at the period from 2002 to 2020.

Design/methodology/approach

The authors quasi-replicate two reference articles that found that socially responsible funds used to underperform, but that this underperformance tendency has disappeared in more recent periods.

Findings

Using US data, the authors show that independent of the ESG database used, portfolios of neutral stocks present consistently higher systematic risk (beta) than ESG portfolios, although this difference decreases over time. This may be due to the significant increase in demand for ESG portfolios in the past decade, and their consequent price inflation and increase in volatility. However, concerning risk-adjusted returns and contrary to the authors’ reference literature, the results are highly dependent on the rating provider used, and neither support underperformance nor indicate a tendency over time. These inconsistent results suggest that the “ESG label” is not a determinant of portfolio performance.

Research limitations/implications

If ESG ratings are a legitim benchmark for sustainability, then the costs of going sustainable in stock portfolios might be marginal for fund managers.

Originality/value

Two different ESG-rating agencies, Morgan Stanley Capital International (MSCI) and Thomson Reuters, are used to identify sustainable stocks. Different from the literature, the authors selected stocks for their portfolios stochastically following a uniform probability distribution, thus avoiding fund manager bias.

Details

Review of Accounting and Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

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Article
Publication date: 16 July 2021

Sedighe Alizadeh, Mohammad Nabi Shahiki Tash and Johannes Kabderian Dreyer

This paper aims to study the impact of liquidity risk and transaction costs on stock pricing in Iran, a closed market operating under a financial embargo and compare the results…

159

Abstract

Purpose

This paper aims to study the impact of liquidity risk and transaction costs on stock pricing in Iran, a closed market operating under a financial embargo and compare the results with those of an important neighboring market, namely, Turkey.

Design/methodology/approach

This study follows Liu et al. (2016) and incorporates liquidity risk and transaction costs into the traditional consumption-based asset-pricing model (CCAPM) from 2009 to 2017. Effective transaction costs are estimated a la Hasbrouck (2009) and liquidity risk according to eight different criteria.

Findings

According to the results, both liquidity risk and transaction costs are higher in Iran, possibly due to the financial embargo. Thus, relative to Turkey, this paper should expect a higher increase in the CCAPM pricing performance in Iran when accounting for these two variables. The results are in line with this expectation and indicate that adjusting the CCAPM significantly increases its pricing performance in both countries, but relatively more in Iran.

Originality/value

This study compares liquidity risk and transaction costs in an economy under the extreme case of a financial embargo to an open yet in other important aspects similar economy from the same region.

Details

Review of Accounting and Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Available. Content available
Book part
Publication date: 30 September 2019

Jacob Dahl Rendtorff

Abstract

Details

Philosophy of Management and Sustainability: Rethinking Business Ethics and Social Responsibility in Sustainable Development
Type: Book
ISBN: 978-1-78973-453-9

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