Value effects of sovereign wealth funds' exclusionary policies: The case of the Norwegian government pension fund-global (NGPF-G)

We examine the value effects of exclusions by the NGPF-G, the world's largest ethical sovereign wealth fund and find that the exclusions elicited mixed response from investors in the short term. The excluded firm experienced significantly negative returns on the announcement date and the week following the exclusions. However, the firms realized higher returns over the three weeks after the exclusion compared to a control sample of firms that are still in the portfolio of the NGPF-G. Analysis of the institutional holdings shows that hedge funds increased their investments in the excluded firms. The excluded firms' operating performance significantly improved after the exclusion. However, consistent with the assertion that the shares of the excluded firms could be overvalued in the short term because the market is unable to price the environmental and social risk which culminated in the exclusion, we find that the excluded firms' underperformed the control sample four years after the exclusion.