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Thesis (Master's)

Reykjavík University > Samfélagssvið / School of Social Sciences > MSc Viðskiptadeild / Department of Business Administration >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1946/37170

Title: 
  • Did firms with higher ESG ranking provide better stock performance during Covid-19?
Degree: 
  • Master's
Abstract: 
  • The ESG effect on stock prices in the U.S. SP500 index is analyzed in this study for the period of Covid-19 from February 10th to March 27th. The major downturns in the market during this period are included in the study. Based on the literature, the study is formalized into the hypothesis that firms with high-ESG rankings would perform better in this period than low-ESG and therefore provide abnormal returns. The 500 firms in the U.S. S&P 500 index are divided into groups of both high-ESG firms that have an ESGC (ESG combined) score of A-B and low-ESG firms that have an ESGC of C-D. There are 280 high-ESG firms and 217 low-ESG firms. The ESG scores used in the study are from Thomson Reuters. The Fama and French three-factor model is used to examine the hypothesis, and an event study approach is used. It is not a typical event study with explicit event dates defined. There are seven event windows defined from February 10th to March 27th. The major finding is that there is no indication that high-ESG firms performed better during the Covid-19 period. There is only a statistical significance on one event window, between high-ESG and low-ESG, and on that event window, low-ESG firms outperform high-ESG firms. The limitations include that there have not been any robustness checks. It can be beneficial to examine the S&P500 index with ESG ratings from another agency like MSCI and/or Sustainalytics, and to check between industries. It could also be beneficial to perform the study again with another market model like the Carhart four factor model or the five factor Fama French model to limit the effect of the marked model.
    Keywords: Abnormal returns, Corporate finance, Covid-19, ESG rankings, Fama and French three-factor model, Stock returns.

Accepted: 
  • Oct 20, 2020
URI: 
  • http://hdl.handle.net/1946/37170


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