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How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market

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  • Du, Qianqian
  • Su, Wanxuan
  • Liang, Dawei
  • Wang, Luying

Abstract

This study contributes to the ongoing debate on whether and how green strategy improves shareholder value. Using listed firms in the Chinese A-share market from 2008 through 2020, we find that a sustainability-based investment strategy by longing green stocks and shorting brown stocks can generate above 4% abnormal returns annually. Further investigation shows that investors' preference for green stocks increases the valuation of such stocks and contributes to the profitability of the trading strategy. We construct a green taste measure using textual analysis of over 400,000 analyst reports, finding that when agents' green tastes increase unexpectedly, the sustainability-based trading strategy generates higher returns in the future. Our findings shed light on the importance of investors' green preference on firms’ valuation.

Suggested Citation

  • Du, Qianqian & Su, Wanxuan & Liang, Dawei & Wang, Luying, 2023. "How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:ecmode:v:124:y:2023:i:c:s0264999323001049
    DOI: 10.1016/j.econmod.2023.106292
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    Cited by:

    1. Laden Mering, 2024. "Analysis of Green HRM, Green Value Strategic Improving CSR and Green Performance in Central Kalimantan HSL Palm Companies," International Review of Management and Marketing, Econjournals, vol. 14(3), pages 113-122, May.

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    More about this item

    Keywords

    Green tastes; ESG; Textual analysis; Market reaction;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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