ESG, liquidity, and stock returns

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We examine the effect of environment, social, and governance (ESG) score on stock returns in the United Kingdom (UK). Consistent with Hong and Kacperczyk (2009), Bolton and Kacperczyk (2021), and Pedersen et al. (2021), firms with lower ESG earn higher returns than those with higher ESG. The environment and social premiums are more pronounced than the ESG premium. To understand the premium, we show that the ESG premium is significant for low liquidity securities but not for high liquidity securities, which suggests that ESG is likely associated with stock liquidity.
Original languageEnglish
Article number101526
Number of pages21
JournalJournal of International Financial Markets, Institutions and Money
Early online date22 Feb 2022
Publication statusPublished - May 2022


  • ESG
  • Stock returns
  • Liquidity


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