Unlocking ESG Premium from Options
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Abstract We find that option expensiveness, measured by delta-hedged option returns, is higher for low-ESG stocks, indicating that investors pay a premium in the options market to hedge against ESG-related uncertainty. We estimate that this ESG premium is about 0.2% for 50 days. All three components of ESG contribute to option pricing. We find that investors pay the ESG premium to hedge against jump risks, but not volatility risks. The effect of ESG performance is more prominent during periods when attention to ESG is higher and for firms that are more subject to ESG-related risks.
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- Authors
- Cao, J., Goyal, A., Zhan, X., & Zhang, W. E.
- Affiliations
- Hong Kong Polytechnic University (HK)
- Swiss Finance Institute (CH)
- Fudan University (CN)
- Hong Kong Baptist University (HK)
- Venue
- Journal of Financial and Quantitative Analysis
- Publisher
- Elsevier BV
- Published
- 2023
- Pages
- 1-42
- ISSN
- 0022-1090 (ISSN-L)
- OpenAlex
- W3191689622
- Cited by
- 16
- References
- 54
- Citations by year
- 2026: 3 · 2025: 1 · 2024: 4 · 2023: 6 · 2022: 2
- FWCI
- 19.46
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- Journal of Financial and Quantitative Analysis (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- Swiss Finance Institute Research Paper Series (submittedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- IE Repository (submittedVersion, cc-by-nc-nd)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Sustainable Finance and Green Bonds
- Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Social Responsibility Reporting
- Keywords
- ESG premium, option pricing, ESG uncertainty, jump risk, volatility risk
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