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

Jeongseok Bang; Doojin Ryu

doi:10.1016/j.frl.2024.105482

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

Jeongseok Bang
, Doojin Ryu

Department of Economics

Korea Institute of Finance

Research output: Contribution to journal › Article › peer-review

26 Scopus citations

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.

Original language	English
Article number	105482
Journal	Finance Research Letters
Volume	65
DOIs	https://doi.org/10.1016/j.frl.2024.105482
State	Published - 1 Jul 2024

Keywords

Esg
Factor zoo
Lasso
Machine learning
Stock market

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10.1016/j.frl.2024.105482

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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{\textquoteright} marginal utility.",

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AB - 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.

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KW - Factor zoo

KW - Lasso

KW - Machine learning

KW - Stock market

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DO - 10.1016/j.frl.2024.105482

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

Abstract

Keywords

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