Li, Zhiyong;
Li, Zhuoran;
Qin, Weiping;
(2025)
ESG Risk and Market Return Predictability: New Evidence From the Eurozone.
European Financial Management
, Article eufm.12553. 10.1111/eufm.12553.
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Abstract
This study examines the predictive power of incident-based Environmental, Social and Governance (ESG) risk on the Eurozone stock market returns using a forecast combination method. We find that our constructed indicator shows significant return predictability from both a statistical and economic perspective, with an out-of-sample CER gain of 4.55% and a Sharpe ratio of 0.43, consistently outperforming the mean benchmark. Moreover, we find that the predictive power is concentrated during non-expansion periods. We attribute this mechanism to the firm's fundamentals, cash flow and discount rate channels. Our findings highlight the value of ESG information for investors.
| Type: | Article |
|---|---|
| Title: | ESG Risk and Market Return Predictability: New Evidence From the Eurozone |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1111/eufm.12553 |
| Publisher version: | https://doi.org/10.1111/eufm.12553 |
| Language: | English |
| Additional information: | This work is licensed under a Creative Commons License. The images or other third-party material in this article are included in the Creative Commons license, unless indicated otherwise in the credit line; if the material is not included under the Creative Commons license, users will need to obtain permission from the license holder to reproduce the material. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/ |
| Keywords: | Social Sciences, Business, Finance, Business & Economics, business cycle, forecast combination, incident-based ESG risk, return predictability, STOCK RETURNS, COMBINATION FORECASTS, PREMIUM, INTEGRATION, GOVERNANCE, GROWTH, SAMPLE, PRICE |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10212526 |
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