The impact of ethical factors on risk-adjusted return: evidence from the Chinese market

Robel Bapari

The impact of ethical factors on risk-adjusted return: evidence from the Chinese market

School of Accounting, Economics and Finance

Research output: Contribution to journal › Article › peer-review

Abstract

This paper examines the impact of the ESG score on risk-adjusted return by examining data from the Chinese market for the period 2006 to 2019. CAPM and factor model are applied to investigate the relationship between ESG score and risk-adjusted return. The empirical findings indicate that ESG scores affected portfolio risk-adjusted return significantly. We found that low ESG score portfolios generate higher average monthly returns than high ESG portfolios. Our findings are confirmed by second-stage regression analysis, providing robust evidence and suggesting that ethical ESG factors are a new risk component on top of size, value, and market factors that affect the risk-adjusted return. Overall, our results are useful for investors, and fund managers to assess the performance of their portfolios and the pricing of the assets.

Original language	English
Journal	International Journal of Financial Engineering and Risk Management
Publication status	Accepted for publication - 10 Jan 2023

Keywords

sustainability
ethical
stakeholder
ESG
SRI
China

Embargoed Document

authorFinalVersion
Accepted author manuscript (Post-print), 513 KB
Due to publisher’s copyright restrictions, this document is not freely available to download from this website until: 1/01/50

Cite this

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title = "The impact of ethical factors on risk-adjusted return: evidence from the Chinese market",

abstract = "This paper examines the impact of the ESG score on risk-adjusted return by examining data from the Chinese market for the period 2006 to 2019. CAPM and factor model are applied to investigate the relationship between ESG score and risk-adjusted return. The empirical findings indicate that ESG scores affected portfolio risk-adjusted return significantly. We found that low ESG score portfolios generate higher average monthly returns than high ESG portfolios. Our findings are confirmed by second-stage regression analysis, providing robust evidence and suggesting that ethical ESG factors are a new risk component on top of size, value, and market factors that affect the risk-adjusted return. Overall, our results are useful for investors, and fund managers to assess the performance of their portfolios and the pricing of the assets.",

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N2 - This paper examines the impact of the ESG score on risk-adjusted return by examining data from the Chinese market for the period 2006 to 2019. CAPM and factor model are applied to investigate the relationship between ESG score and risk-adjusted return. The empirical findings indicate that ESG scores affected portfolio risk-adjusted return significantly. We found that low ESG score portfolios generate higher average monthly returns than high ESG portfolios. Our findings are confirmed by second-stage regression analysis, providing robust evidence and suggesting that ethical ESG factors are a new risk component on top of size, value, and market factors that affect the risk-adjusted return. Overall, our results are useful for investors, and fund managers to assess the performance of their portfolios and the pricing of the assets.

AB - This paper examines the impact of the ESG score on risk-adjusted return by examining data from the Chinese market for the period 2006 to 2019. CAPM and factor model are applied to investigate the relationship between ESG score and risk-adjusted return. The empirical findings indicate that ESG scores affected portfolio risk-adjusted return significantly. We found that low ESG score portfolios generate higher average monthly returns than high ESG portfolios. Our findings are confirmed by second-stage regression analysis, providing robust evidence and suggesting that ethical ESG factors are a new risk component on top of size, value, and market factors that affect the risk-adjusted return. Overall, our results are useful for investors, and fund managers to assess the performance of their portfolios and the pricing of the assets.

KW - sustainability

KW - ethical

KW - stakeholder

KW - ESG

KW - SRI

KW - China

M3 - Article

SN - 2049-0917

JO - International Journal of Financial Engineering and Risk Management

JF - International Journal of Financial Engineering and Risk Management

ER -

The impact of ethical factors on risk-adjusted return: evidence from the Chinese market

Abstract

Keywords

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