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Evaluating ESG Investment Profitability: From the Perspective of Sophistication in Investment Decision-Making

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  • Lu, Xiaomeng
  • Zhang, Xianjun
  • Guo, Fusen
  • Li, Feng

Abstract

Environmental, Social, and Governance (ESG) investments are widely discussed in the stock market. Further, the debate on ESG investment profitability has garnered significant scholarly attention. This study examines the relationship between ESG investments and equity investment return (EIR) and whether this relationship is affected by investors' sophistication. The results suggest that while ESG investors generally gain relatively lower profits than others, sophisticated investors, characterized by greater financial knowledge, diversified investments, contrarian investment strategies, and not being influenced by familiar biases, can mitigate these lower returns. These findings enhance our understanding of ESG investments and offer valuable insights to guide investors in making sophisticated ESG investment decisions.

Suggested Citation

  • Lu, Xiaomeng & Zhang, Xianjun & Guo, Fusen & Li, Feng, 2024. "Evaluating ESG Investment Profitability: From the Perspective of Sophistication in Investment Decision-Making," Finance Research Letters, Elsevier, vol. 69(PA).
  • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011346
    DOI: 10.1016/j.frl.2024.106105
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    More about this item

    Keywords

    ESG investment; Investor sophistication; Equity investment return;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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