Unraveling the relationship between sustainability and returns: a multi-attribute utility analysis

IF 9 1区 经济学 Q1 BUSINESS, FINANCE
Marcos Escobar-Anel, Yiyao Jiao
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引用次数: 0

Abstract

Purpose

This study aims to establish an analytical framework to help investors accommodate their environmental, social, and corporate governance (ESG) preferences. The analytical solutions were complemented by empirical analyses to shed light on their benefits and tractability.

Design/methodology/approach

This study proposes an expected multi-attribute utility analysis for ESG investors in which stocks can be treated as more green or less green (brown) than the market, represented by an index, all modeled in a one-factor structure. The solution is found via the Hamilton-Jacobi-Bellman (HJB) equation with proper treatment of various sources of risk. For the empirical analysis, we use the RepRisk Rating of US stocks from 2010 to 2020 to select companies that are representative of various ESG ratings.

Findings

This study finds closed-form solutions for optimal allocations, wealth and value functions. Our empirical analysis reveals drastic increases in wealth allocation toward high-rated ESG stocks for ESG-sensitive investors, even as the overall level of pecuniary satisfaction remains unchanged.

Originality/value

This study broadens the existing analytical framework by introducing a market portfolio along with green and brown stocks. As by-products, we first demonstrate that investors do not need to reduce their pecuniary satisfaction to increase green investment. Second, we propose a parameterization to capture investors' preferences for green assets over brown or market assets, independent of asset performance.

揭示可持续性与回报之间的关系:多属性效用分析
目的本研究旨在建立一个分析框架,帮助投资者适应其环境、社会和公司治理(ESG)偏好。本研究为 ESG 投资者提出了一种预期多属性效用分析,在这种分析中,股票可以被视为比市场更绿色或更不绿色(棕色),由指数代表,所有这些都在单因素结构中建模。我们通过汉密尔顿-雅各比-贝尔曼(HJB)方程找到了解决方案,并对各种风险来源进行了适当处理。在实证分析中,我们使用 2010 年至 2020 年美国股票的 RepRisk 评级来选择代表各种 ESG 评级的公司。我们的实证分析表明,对环境、社会和公司治理敏感的投资者在总体金钱满意度保持不变的情况下,对高ESG评级股票的财富分配大幅增加。作为副产品,我们首先证明了投资者无需降低其金钱满意度来增加绿色投资。其次,我们提出了一种参数化方法,以捕捉投资者对绿色资产相对于棕色资产或市场资产的偏好,而与资产表现无关。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
12.40
自引率
1.20%
发文量
112
期刊介绍: China Finance Review International publishes original and high-quality theoretical and empirical articles focusing on financial and economic issues arising from China's reform, opening-up, economic development, and system transformation. The journal serves as a platform for exchange between Chinese finance scholars and international financial economists, covering a wide range of topics including monetary policy, banking, international trade and finance, corporate finance, asset pricing, market microstructure, corporate governance, incentive studies, fiscal policy, public management, and state-owned enterprise reform.
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