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Title: Green sentiment, stock returns and corporate behavior Authors:  Marie Briere - Universite Libre de Bruxelles, Paris Dauphine University and Amundi (France)
Stefano Ramelli - University of Zurich (Switzerland) [presenting]
Abstract: A new method is proposed to estimate non-fundamental demand for green financial assets based on the arbitrage activity of exchange-traded funds (ETFs). By estimating the monthly abnormal flows into environment-friendly ETFs, we construct a Green Sentiment Index capturing shifts in investors' appetite for environmental responsibility not yet priced in the value of the underlying assets. Our measure of green sentiment differs significantly from the climate-related news and attention indexes proposed by the extant literature, and it has additional explanatory power on both stock returns and corporate decisions. Over the period 2010-2020, changes in green sentiment anticipate a lasting stock out-performance by more environmentally responsible firms (of approximately 60 basis points over six months for a one-standard-deviation higher green sentiment), as well as an increase in their capital investments and cash holdings.