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The Impact of ESG Rating on Hedging Downside Risks: Evidence from a Weight-Tilted Hang Seng Index

Author

Listed:
  • Joseph K. W. Fung

    (Lee Shau Kee School of Business and Administration, Hong Kong Metropolitan University, Hong Kong, China)

  • F. Y. Eric Lam

    (Citigroup, 388 Greenwich Street, New York, NY 10013, USA)

  • Yiuman Tse

    (College of Business Administration, University of Missouri, St. Louis, MO 63121, USA)

Abstract

The study examines the return performance and resilience to market volatility of the recently introduced environment, social/sustainable, and governance (ESG) weight-tilted Hang Seng index compared to its parent, the Hang Seng index. The ESG-infused index has a higher mean return and lower return volatility than the parent index, although the differences are statistically and economically insignificant, a result consistent with the high correlation between the two index returns. Most importantly, the ESG weight-tilted index is more resilient to volatility spikes than the parent index and, therefore, has lower downside risks. The overall results show that stocks with high ESG ratings are less susceptible to trading pressures triggered by volatility-induced turnovers. The paper contributes to the literature by providing significant incremental information on the emerging market for ESG-related equity products in Hong Kong.

Suggested Citation

  • Joseph K. W. Fung & F. Y. Eric Lam & Yiuman Tse, 2024. "The Impact of ESG Rating on Hedging Downside Risks: Evidence from a Weight-Tilted Hang Seng Index," JRFM, MDPI, vol. 17(2), pages 1-17, January.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:2:p:57-:d:1330777
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    References listed on IDEAS

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    1. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    2. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    3. Robert G. Eccles & Ioannis Ioannou & George Serafeim, 2014. "The Impact of Corporate Sustainability on Organizational Processes and Performance," Management Science, INFORMS, vol. 60(11), pages 2835-2857, November.
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    Cited by:

    1. Barbara Iannone & Pierdomenico Duttilo & Stefano Antonio Gattone, 2025. "Evaluating the resilience of ESG investments in European Markets during turmoil periods," Papers 2501.03269, arXiv.org.
    2. Barbara Iannone & Pierdomenico Duttilo & Stefano Antonio Gattone, 2025. "Evaluating the Resilience of ESG Investments in European Markets During Turmoil Periods," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 32(4), pages 5006-5020, July.

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