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ESG risk and returns implied by demand-based asset pricing models

Author

Listed:
  • Chi Zhang

    (BlackRock, Inc.)

  • Xinyang Li

    (BlackRock, Inc.)

  • Andrea Tamoni

    (Rutgers Business School)

  • Misha Beek

    (BlackRock, Inc.)

  • Andrew Ang

    (BlackRock, Inc.)

Abstract

We investigate how changes in demand for Environment, Social and Governance (ESG) characteristics affect stock prices. We consider three scenarios: increased demand for ESG characteristics by investors, shifts in assets under management from institutions with low demand for ESG characteristics to those with high demand, and changes in the ESG characteristics of the stocks themselves. To compute the effects of the scenarios, we use a demand-based asset pricing model which is calibrated to individual stock-level holdings of institutional investors. We find that these scenarios lead to significantly different returns of stocks with different ESG characteristics.

Suggested Citation

  • Chi Zhang & Xinyang Li & Andrea Tamoni & Misha Beek & Andrew Ang, 2024. "ESG risk and returns implied by demand-based asset pricing models," Journal of Asset Management, Palgrave Macmillan, vol. 25(3), pages 203-221, May.
    • Handle: RePEc:pal:assmgt:v:25:y:2024:i:3:d:10.1057_s41260-024-00354-3
    DOI: 10.1057/s41260-024-00354-3
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    References listed on IDEAS

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