Working Paper: CEPR ID: DP14661
Authors: Rui Albuquerque; Yrjo Koskinen; Shuai Yang; Chendi Zhang
Abstract: The COVID-19 pandemic and the subsequent lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. Using U.S. data, this paper explores how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared to other firms. We show that stocks with high ES ratings have significantly higher returns, lower return volatilities, and higher trading volumes than other stocks. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This paper highlights the importance of ES policies in making firms more resilient during a time of crisis.
Keywords: ESG; COVID-19; Market Crash; Stock Returns; Volatility; Trading Volume; Customer Loyalty
JEL Codes: G12; G32; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High ES ratings (C51) | Higher stock returns (G17) |
| High ES ratings (C51) | Lower return volatility (G17) |
| High ES ratings (C51) | Higher trading volumes (G15) |
| Increase in ES ratings (C87) | Increase in stock returns (G17) |
| High ES ratings + High advertising expenditures (M37) | Higher stock performance (G17) |
| High ES ratings (C51) | Stabilizing effect on stock prices (G19) |
| High ES ratings (C51) | Increased trading volumes after February 24 (G15) |