DP14661 Love in the Time of COVID-19: The Resiliency of Environmental and Social Stocks

Author(s): Rui Albuquerque, Yrjo Koskinen, Shuai Yang, Chendi Zhang
Publication Date: April 2020
Keyword(s): COVID-19, Customer loyalty, ESG, market crash, Stock returns, trading volume, volatility
JEL(s): G12, G32, M14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14661

The COVID-19 pandemic and the subsequent lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. Using U.S. data, this paper explores how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared to other firms. We show that stocks with high ES ratings have significantly higher returns, lower return volatilities, and higher trading volumes than other stocks. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This paper highlights the importance of ES policies in making firms more resilient during a time of crisis.