ESG Preference, Institutional Trading, and Stock Return Patterns

Abstract Socially responsible (SR) institutions tend to focus more on the environmental, social, and governance (ESG) performance less quantitative signals of value. Consistent with this difference in focus, we find that SR react mispricing signals. Our evidence suggests increased ESG may have influenced stock return patterns. Specifically, abnormal returns associated these are greater for stocks held by institutions. The link between ownership efficacy only emerges recent years rise investing, is significant when there arbitrage-related funding constraints.