Combination of ESG and momentum

: evidence of the canadian market

Abstract

The increasing relevance of Environmental and Social impact of firms on the world has also increased the importance of the ESG score. According to the study performed by Kaiser and Welters, (2019), a higher ESG score decreases the probability that the company is going to be affected by a social movement or any kind of adversity that the market could face. This study analyzes if a double-sorted momentum strategy based on ESG scores and prior returns can outperform and achieve a lower volatility than the Canadian market benchmark and single factor momentum portfolios between the years 2008 and 2020. At the same time, it is tested if the strategy also decreases the volatility of momentum during market crashes.I find that the double-sorted strategy outperforms the S&P/TSX Composite in most of the portfolios created. My strategy achieves an average return higher than the benchmark and the single factor momentum portfolios. However, the volatility that the double-sorted portfolios present is higher than the benchmark or single factor portfolios, this can be noticed in the fact that the strategy achieves higher maximum return values, but the minimum returns are considerably lower than the single factor strategies or the benchmark. Focusing on market crashes, the strategy still presents a higher volatility with average returns higher than the S&P/TSX Composite or the single factor portfolios.

Date of Award	18 Oct 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eva Schliephake (Supervisor)