The effects of Environmental, Social and Governance measures on the cross section of stock return, a compensation for risk or mispricing? Evidence from the Swedish stock market
Abstract: There is a lack of uniformity throughout the literature regarding the effects of sociallyresponsible investing. By implementing a Fama-MacBeth style regression with theFama French three factors and the momentum factor, extended with several detailedenvironmental, social and governance scores the lack of uniformity of these effects areconfirmed. The combined social score, the product responsibility and community scoresare shown to have positive relations to stock returns, while the human rights and managementscores are shown to have negative relations. Deepening the analysis, whetherthese effects are due to mispricing or risk, there is evidence that the combined socialscore is to be explained by being a risk factor while the other scores are found to beexplained by mispricing.
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