ESG Preference and Market Efficiency: Evidence from Mispricing and Institutional Trading
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AbstractWe explore how the trend towards socially responsible investing affects the informational efficiency of stock prices. The return predictability of mispricing signals is much stronger among firms held by more socially responsible institutions (SR_Is). The results are driven by the divergence of trading implications from ESG performance and mispricing signals. SR_Is are less likely to buy underpriced stocks with bad ESG performance or sell overpriced stocks with good ESG performance. We rule out alternatives, such as known limits to arbitrage. The inefficiency only emerges in recent years with the rise of ESG investing, and is not fully offset by ESG-neutral arbitrageurs due to funding liquidity constraints.
All Author(s) ListJie Cao, Sheridan Titman, Xintong Zhan, Weiming Zhang
Name of ConferenceFinance Down Under Conference
Start Date of Conference07/03/2019
End Date of Conference09/03/2019
Place of ConferenceMelbourne
Country/Region of ConferenceAustralia
LanguagesEnglish-United States

Last updated on 2020-19-05 at 16:48