Investment and Asset Pricing with ESG Disagreement
By Doron Avramov, Si Cheng, Abraham Lioui, Andrea Tarelli. Social Science Research Network, 2020
819 citations recorded by the source corpus.
This paper analyzes the equilibrium implications of ESG rating disagreement for portfolio decisions and asset pricing. Rating disagreement leads to higher effective risk aversion, higher market premium, and lower demand for stocks. Disagreement also tilts the negative ESG-CAPM alpha relation and affects the systematic risk exposure of individual stocks. Combining ESG ratings from six major rating agencies, we provide supporting evidence for the model predictions. Our findings help reconcile the mixed evidence on the cross-sectional return predictability of ESG ratings and they suggest that the lack of consistency in ESG ratings could distort the risk-return trade-off.
Subfields: Accounting, Finance, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/3cd7156b777db563f03bcd2425be10a56e699dc8
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Citations in the corpus
- Dissecting Climate Risks: Are they Reflected in Stock Prices? (2021, background): “The construction of accurate measures is of importance because this will decrease the cost of capital of even green firms (Avramov et al. (2021)) and capture climate risks accurately. Most closely related to our paper is Engle et al. (2020), who also use textual analysis to construct their aggregate”