The study examines the return spillover effects across the three different long-short portfolio indices during the COVID-19 pandemic.
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Investors become more attentive to corporate fundamentals – causing capital flowing away from the defensive and EAFE portfolios to the ESG portfolio during crisis periods.
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Investors find refuge in the ESG approach as it focuses on the long-run sustainability of firms.
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Partly explains why the ESG approach outperforms during an uncertain environment – documented in the previous literature.
Abstract
I examine the spillover effects across the three different long-short portfolio indices during the COVID-19 pandemic. The relative outperformance of the ESG portfolio, reported by Nofsinger and Varma (2014) and Lins et al. (2017), comes from the fact that the probability of its returns getting affected by the other safer investment strategies increases during an economic slowdown. It implies that investors become more attentive to corporate fundamentals – causing capital flowing away from the defensive and EAFE portfolios to the ESG portfolio during crisis periods. Investors find refuge in the ESG approach as it focuses on the long-run sustainability of firms.
