Retail Investors and ESG News

Qianqian Li, Edward M. Watts, Christina Zhu

2023 | Academic | Investor Behavior, Risk & Performance

We show that ESG news events appear to be an important and growing component of retail investors' portfolio allocation decisions. Yet, inconsistent with non-pecuniary preferences, our evidence shows that retail investors mainly trade on this information when they deem it financially material to a company's stock performance. We also find their net trading demand predicts future abnormal returns, consistent with retail traders benefiting from incorporating ESG-related information in their decision-making.