Fund ESG performance and downside risk: Evidence from China

The Impact of ESG Rating on Hedging Downside Risks: Evidence from a Weight-Tilted Hang Seng Index

“…Therefore, the finding of a significant difference in the risk and return profiles between the HSIESG and its parent HSI would provide a strong testimony that the ESG-tilted weights have a material impact on the index performance and that the ESG-infused portfolio is more resilient to market volatility than the parent index due to a preference buffer. Following the arguments of Zhang et al (2023), our results suggest that the firm-level channel and the flow channel are more important than the diversification channel.…”

“…The evidence also shows that the ESG weight-tilted index is more resilient to volatility spikes than the parent index, indicating that stocks with high ESG ratings can be a hedge against market downside risks. In particular, our results suggest that the firm-level channel and the flow channel are more important than the diversification channel postulated in Zhang et al (2023). This paper also contributes to the literature by providing significant incremental information on the emerging market for ESG-related equity products.…”

“…Several recent papers provide different results and perspectives about the fund ESG performance. Zhang et al (2023) propose three channels through which ESG performance will influence fund downside risk. First, the risk-mitigation effect of individual portfolio firms' good ESG practices suggests a negative relationship between ESG ratings and downside risk (the firm-level channel).…”

“…The existence of the ESG premium in firm values can propel both financial and real production activities to align economic goals with social welfare objectives. Zhang et al (2023) propose three channels through which fund ESG performance could affect fund downside risk: the firm channel in which the risk-mitigation effect of ESG is reflected at the firm level, the diversification channel in which the portfolio concentration of high-ESG funds can aggravate downside risk, and the flow channel in which high-ESG funds can attract investor flows and, consequently, reduce downside risk. The relationship between ESG ratings and downside risk depends on the relative force of these three channels.…”

Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?

“…Therefore, retail and institutional investors should also take downside risk into consideration. Most previous research papers investigating the determinants of systematic and downside risks focus on developed markets (Ali et al 2022) or Asian emerging markets (Bui et al 2017;Zhang et al 2023;He et al 2023). The determinants of these two types of risk in the Russian market have not been studied in detail, and our research fills this gap.…”