Abstract
This thesis examines the relationship between both ESG-ratings and stock performance, and ESG-disagreement and stock performance. The analysis is based on ESG-ratings from three established rating providers, Refinitiv, Bloomberg and S&P Global. To examine this relationship, there is created decile portfolios and long-short strategies, based on ESG-ratings and ESG-disagreement. Stock performance is measured as alpha and for that purpose, this thesis applies the CAPM, the Fama & French three-factor-model and the Fama & French five-factor-model.
The portfolio is made up of stocks in the S&P500 index and is analyzed from January 2010 to December 2022. The analysis first examines to which degree rating providers agree on ratings, by testing the Pearson correlation, the agreement was found to be unsatisfying. The thesis then finds that the highest alphas are generated from decile portfolios based on the total ESG-weight, while cap-weighted long-strategies consistently outperform similar equal-weighted portfolios.
Furthermore, the analysis finds that decile portfolios with better ratings produce higher alpha, which the robustness test seems to support.
Long-short strategies differ from long strategies in respect to equal-weighted strategies which outperforms cap-weighted, but otherwise showing a similar relationship between ESG-ratings and stock performance.
The thesis does not find any clear relationship between ESG-disagreement and stock performance from looking at long strategies of decile portfolios. However different ESG-weights seem to show some trend from testing their robustness. However these trends are not consistent between ESG-weights hence it is concluded that there is no clear relationship between ESG-disagreement and stock performance.
By examining the alpha produced by decile portfolios over time, based on Refinitiv ratings, it is found that the development in alpha over time, does not show any clear trends, whereas the long-short strategy shows diminishing alphas.
The conclusion is that in order to beat the American stock market there is no clear method, but the best way seems to be, by investing in stocks with higher total ESG-ratings,
| Educations | MSc in Finance and Accounting, (Graduate Programme) Final Thesis |
|---|---|
| Language | Danish |
| Publication date | 2023 |
| Number of pages | 102 |