Sustainability Uncertainty Risk Exposure and Stock Returns: Evidence from China
DOI:
https://doi.org/10.54097/wnjfx690Keywords:
Sustainability uncertainty risk, Stock cross-sectional returns, Chinese stock market, Investor belief, Company profitability.Abstract
This study examines the impact of sustainability uncertainty risk on Chinese stock returns. We find that lower exposure to sustainability uncertainty risk is significantly associated with stock premiums: stocks with lower exposure to sustainability uncertainty risk outperform those with higher exposure in the following months. The results indicate that this premium does not stem from risk adjustment factors or commonly recognized pricing factors. Additionally, the robustness of this premium can be demonstrated through a series of alternative settings. Finally, we offer some potential explanations for the low-risk exposure premium: sustainability uncertainty risk may reduce corporate profitability and increase corporate investment, leading to lower future stock returns; additionally, sustainability uncertainty risk shocks may increase investor attention, causing investors to prefer purchasing stocks with lower risk exposure to hedge against risk.
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