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Article: Dynamic ESG Equilibrium
| Title | Dynamic ESG Equilibrium |
|---|---|
| Authors | |
| Issue Date | 24-Jun-2024 |
| Publisher | Institute for Operations Research and Management Sciences |
| Citation | Management Science, 2024 How to Cite? |
| Abstract | This paper proposes a conditional asset pricing model that integrates environmental, social, and governance (ESG) demand and supply dynamics. Shocks in the demand for sustainable investing represent a novel risk source, characterized by diminishing marginal utility and positive premium. Green assets exhibit positive exposure to ESG demand shocks, hence commanding higher premia. Conversely, time-varying convenience yield leads to lower expected returns for green assets. Moreover, ESG demand shocks have positive contemporaneous effects on unexpected returns, contributing to large positive payoffs in the green-minus-brown portfolio over extended horizons. The model predictions align closely with evidence on return spreads between green and brown assets, further reinforcing the apparent gap between realized and expected spreads. |
| Persistent Identifier | http://hdl.handle.net/10722/344114 |
| ISSN | 2023 Impact Factor: 4.6 2023 SCImago Journal Rankings: 5.438 |
| DC Field | Value | Language |
|---|---|---|
| dc.contributor.author | Avramov, Doron | - |
| dc.contributor.author | Lioui, Abraham | - |
| dc.contributor.author | Liu, Yang | - |
| dc.contributor.author | Tarelli, Andrea | - |
| dc.date.accessioned | 2024-07-03T08:40:46Z | - |
| dc.date.available | 2024-07-03T08:40:46Z | - |
| dc.date.issued | 2024-06-24 | - |
| dc.identifier.citation | Management Science, 2024 | - |
| dc.identifier.issn | 0025-1909 | - |
| dc.identifier.uri | http://hdl.handle.net/10722/344114 | - |
| dc.description.abstract | <p>This paper proposes a conditional asset pricing model that integrates environmental, social, and governance (ESG) demand and supply dynamics. Shocks in the demand for sustainable investing represent a novel risk source, characterized by diminishing marginal utility and positive premium. Green assets exhibit positive exposure to ESG demand shocks, hence commanding higher premia. Conversely, time-varying convenience yield leads to lower expected returns for green assets. Moreover, ESG demand shocks have positive contemporaneous effects on unexpected returns, contributing to large positive payoffs in the green-minus-brown portfolio over extended horizons. The model predictions align closely with evidence on return spreads between green and brown assets, further reinforcing the apparent gap between realized and expected spreads.</p> | - |
| dc.language | eng | - |
| dc.publisher | Institute for Operations Research and Management Sciences | - |
| dc.relation.ispartof | Management Science | - |
| dc.title | Dynamic ESG Equilibrium | - |
| dc.type | Article | - |
| dc.identifier.doi | 10.1287/mnsc.2022.03491 | - |
| dc.identifier.eissn | 1526-5501 | - |
| dc.identifier.issnl | 0025-1909 | - |