ESG fund performance and fund manager trading strategy: Evidence from China

This study investigates the performance of environmental, social, and governance (ESG) funds compared with their conventional counterparts in China's financial market, using quarterly stockholding data from 2018 to 2021. The findings show that ESG funds consistently outperform conventional ones in generating risk-adjusted excess returns. ESG funds also exhibit lower tendencies toward window dressing and maintain longer investment horizons, reflecting their commitment to long-term objectives and reduced focus on short-term gains. Probit model results reveal that fund managers' personal characteristics—particularly gender and investment style—significantly influence the likelihood of a fund being classified as an ESG fund. Additionally, a trading strategy that mimics ESG principles by investing in high-ESG-rated stocks and divesting from low-rated ones generates positive returns, underscoring the profitability of ESG-based investment strategies. This research provides valuable insights into China's ESG fund landscape and emphasizes its growing role in promoting sustainable development within the global financial ecosystem.