Time Lagged Effects of ESG Scores and Investor Attention on Stock Returns

This paper explores whether the effects of environmental, social, and governance (ESG) and investor attention on stock returns have time lags. We hypothesize that the effect of ESG score on stock returns is time-lagged, and the effect of investor attention on stock returns is time-lagged. We conducted a panel analysis of ESG scores, Baidu index separately regarding annual excess stock returns, and added control variables such as size, sales and leverage. Considering that the impact of ESG score and Baidu index is long-term, we introduced time lag. We find that both hypotheses hold, and ESG scores four years ago had the greatest impact on the stock returns of the year, investor attention two years ago had the greatest impact on the stock returns of the year. The contribution of this thesis is to introduce time lags when analyzing the impact of ESG scores or investor attention on stock returns.