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Understanding ESG investing using higher return moments

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  • Shan, Tao

Abstract

This study explores the link between environmental, social, and governance (ESG) performance and higher return moments (i.e., skewness and kurtosis) addressing a key research gap. It hypothesizes that firms with stronger ESG performance exhibit higher return skewness due to improved market perception and reduced downside risk, as well as lower return kurtosis resulting from better risk management and financial conservatism. Investors accept lower mean returns in ESG firms due to skewness preference and kurtosis aversion, a theory-supported notion. Empirical findings confirm these expectations, clarifying the significance of skewness and kurtosis risk management for ESG investors.

Suggested Citation

  • Shan, Tao, 2025. "Understanding ESG investing using higher return moments," Finance Research Letters, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finlet:v:80:y:2025:i:c:s1544612325006464
    DOI: 10.1016/j.frl.2025.107386
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    References listed on IDEAS

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