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The Effectiveness of News‐Based ESG Sentiment for Predicting Stock Returns: Evidence From China

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  • Haixu Yu
  • Chuanyu Liang
  • Zhaohua Liu
  • Xue Cui

Abstract

This study examines the impact of ESG sentiment on the forecast of excess stock returns. We construct a monthly ESG sentiment index (SESG) that captures the tone of ESG news coverage, distinguishing between positive and negative sentiment. Our findings indicate that SESG predictions of market excess returns are statistically significant in both in‐sample and out‐of‐sample analyses, with stronger predictive power during high sentiment periods compared to low sentiment periods. Furthermore, economic tests demonstrate that SESG generates a high Sharpe ratio and utility gains for investors, highlighting its potential economic benefits as a predictor in the increasingly important field of ESG investments.

Suggested Citation

  • Haixu Yu & Chuanyu Liang & Zhaohua Liu & Xue Cui, 2025. "The Effectiveness of News‐Based ESG Sentiment for Predicting Stock Returns: Evidence From China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(3), pages 2724-2732, September.
    • Handle: RePEc:bla:acctfi:v:65:y:2025:i:3:p:2724-2732
    DOI: 10.1111/acfi.70015
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    References listed on IDEAS

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    Cited by:

    1. Du, Yangyang & Du, Linqi, 2026. "ESG performance, media sentiment, and corporate asset mispricing," Finance Research Letters, Elsevier, vol. 87(C).

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