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ESG factors and the cross-section of expected stock returns: A LASSO-based approach

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  • Bang, Jeongseok
  • Ryu, Doojin

Abstract

We analyze high-dimensional factor data in the U.S. market to examine whether the ESG (environmental, social, and governance) factors help explain the cross-section of expected stock returns. To avoid omitted variable biases, we use the double-selection LASSO approach with more than 160 risk factors. ESG and environmental factors potentially explain the cross-section of stock returns and can also affect investors’ marginal utility.

Suggested Citation

  • Bang, Jeongseok & Ryu, Doojin, 2024. "ESG factors and the cross-section of expected stock returns: A LASSO-based approach," Finance Research Letters, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005129
    DOI: 10.1016/j.frl.2024.105482
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    More about this item

    Keywords

    Esg; Factor zoo; Lasso; Machine learning; Stock market;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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