Green Sentiment, Stock Returns, and Corporate Behavior

In this paper, we propose a new method to estimate nonfundamental demand shocks 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 that captures shifts in investors’ appetite for environmental responsibility that are not yet priced in the value of the underlying assets.

Our measure of green sentiment differs significantly from the news-based climate indexes proposed by the extant literature, and it has additional explanatory power on both stock returns and corporate decisions. 

You can now read the full whitepaper at the link below