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Does ESG explain stock returns? Evidence from Chinese stock markets

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  • Shang, Zili
  • Yu, Bo
  • Lam, Keith S.K.

Abstract

We construct a new interaction-mitigated ESG measure to examine the ESG–return relation in Chinese stock markets. Our results suggest that the new ESG measure has significant explanatory power for stock excess returns at both firm characteristic and systematic factor levels. In addition, our results demonstrate heterogeneity in the explanatory power of the new measure on excess returns, with the relation being significant for small firms and those with low asset growth (AG), earnings-to-price (EP), and high return on equity (ROE) ratios, but much weaker for large firms and those with high AG, EP, and low ROE ratios.

Suggested Citation

  • Shang, Zili & Yu, Bo & Lam, Keith S.K., 2025. "Does ESG explain stock returns? Evidence from Chinese stock markets," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325004775
    DOI: 10.1016/j.frl.2025.107214
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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