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- Title
Has ESG Become a Crowded Trade?
- Authors
diBartolomeo, Dan; Zieff, William
- Abstract
This article considers whether the pervasive (and sometimes mandatory) adoption of ESG standards for equity investors has resulted in distorting the efficient price-setting function of financial markets in a fashion widely described as a crowded trade. The article begins with describing the popular conception of crowded trades and presents some evidence that forms a logical basis for the belief that ESG strategies may have become crowded. Next, the authors provide a brief review of the related literature on crowding and impart what they assert is a more precise and appropriate definition of crowding. The authors then conduct three distinct empirical tests over the period from the start of 1992 through the end of 2021, from which the presence of crowding can be observed. The results indicate that despite the extraordinary growth of ESG-driven strategies for both institutional and retail investors, there is no compelling evidence that crowding has impacted the efficiency of the asset-pricing mechanism of equity markets.
- Subjects
FINANCIAL markets; STOCK exchanges; INVESTORS; ENVIRONMENTAL, social, &; governance factors; INSTITUTIONAL investments
- Publication
Journal of Impact & ESG Investing, 2024, Vol 4, Issue 3, p7
- ISSN
2693-1982
- Publication type
Article
- DOI
10.3905/jesg.2024.1.093