Esg integration in multi factor models

• Autor(a) principal: Cutolo, Christopher
• Data de Publicação: 2021
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/133370
• topic: Asset pricing; ESG; Factor models; Fama MacBeth procedure; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Over the last years ESG has become one of the major trends within the financial world. Investors are expressing more interest in environmental, social and governance issues and experts are routinely integrating sustainability considerations when building portfolios. Several studies have been conducted and papers have been published trying to analyze ESG’s integration into the asset management world. Results show lack of uniformity and coherence when it comes to understanding the impact of socially responsible investments. We construct factor mimicking portfolios based on E, S and G scores to study the relationship between sustainability and financial performance in the American market. The results show that long short portfolios constructed in this fashion display negative returns over the period that spans from July 2002 until June 2020. This is mainly because of the significant positive returns of stocks with low sustainability scores. Moreover, regression analyses are conducted using the classic Fama Mac Beth procedure (1973), implementing the Newey West correction to account for heteroskedasticity and autocorrelation. Incorporating both the Fama- French five factor model and other control variables, ambiguous and mainly insignificant results are obtained