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Searching for ESG Information: Heterogeneous Preferences and Information Acquisition

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  • Zhou, Xuan
  • Kang, Junqing

Abstract

We study how environmental, social, and governance (ESG) investing reshapes investors’ information-searching decisions. We develop a rational expectations equilibrium (REE) with endogenous information-searching decisions, in which traditional and green investors have distinct preferences for monetary and non-monetary risks. These investor groups seek different information from a security’s price. The heterogeneity in price interpretation makes investors with heterogeneous preferences focus more on the same risk component that is less represented in the price. Furthermore, trading intensities respond asymmetrically to different kinds of information. Traditional and green investors trade similar information in opposite ways. As more traditional investors switch to green trading, the price is more (less) informative about monetary (non-monetary) risks.

Suggested Citation

  • Zhou, Xuan & Kang, Junqing, 2023. "Searching for ESG Information: Heterogeneous Preferences and Information Acquisition," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:dyncon:v:153:y:2023:i:c:s0165188923000994
    DOI: 10.1016/j.jedc.2023.104693
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    References listed on IDEAS

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    Cited by:

    1. Fei Xu & Xingyu Zhu & Mingke Li, 2024. "Environmental, Social, and Governance Information Rating and Firm Uncertainty Perception, Evidence from China Listed Firms," Sustainability, MDPI, vol. 16(14), pages 1-16, July.
    2. Li, Shasha & Yang, Biao, 2023. "Green investing, information asymmetry, and capital structure," IWH Discussion Papers 20/2023, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Environmental; social; and governance (ESG); heterogeneous preference; attention allocation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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