Abstract:

This study examines the impact of Environmental, Social, and Governance (ESG) performance on stock returns and herding behavior in the stocks that comprise the S&P 500 market index. We analyze the period from May 1, 2014, to May 1, 2024, with a particular focus on the COVID-19 pandemic. We employ multiple regression analysis to assess the relationship between stock returns and key financial indicators: market capitalization, price-to book value (P/BV) ratio, Sharpe ratio, and ESG scores. Our findings reveal that higher Sharpe ratios are strongly associated with higher annualized returns, whereas ESG scores have an economically small but statistically significant negative impact on returns. To investigate herding behavior, we apply the cross-sectional absolute deviation (CSAD) methodology. The results indicate significant herding behavior and suggest that ESG score performance motivates herding in the S&P 500 market index. However, during the COVID-19 pandemic, we observe a significant antiherding behavior. Overall, our study contributes to the understanding of how ESG performance influences stock returns and herding behavior, highlighting the complexities of investor behavior during periods of market stress.

Keywords:

COVID-19 Pandemic, ESG Performance, Herding Behavior, Investor Behavior, Stock Returns, S&P 500 index, Sharpe ratio.

How to Cite:

Mohammed Amine Chafik, Adda Benslimane, Faouzi Boussedra and Júlio Lobão. Impact of ESG Performance on Stock Returns and Herding Behavior: An Analysis of the US Stock Market . [ref]: vol.22.2024. available at: https://refpress.org/ref-vol22-a38/