Individual Investors’ Beliefs and Socially Responsible Investment

Description

Abstract:
ESG (environmental, social and governance) factors increasingly attract huge amount of capital and investors’ attention. A rational decision of investment is affected by both investors’ beliefs and their preferences. However, research of SRI investment decision almost solely rely on investors’ preferences, which would ignore the investors’ beliefs and leads to limited understanding about SRI investment. We investigate the investors’ formation and updating of beliefs towards ESG, and their adjustment of ambiguity attitudes towards ESG. We propose an experimental design to elicit investors’ beliefs for testing the fundamental differences in behavioural decisions driven by ESG factors. We will examine the following hypothesis: (1) Individual investors’ beliefs are more optimistic towards ESG stocks/funds. (2) Individual investors relatively underweight negative new information when updating their beliefs of return towards SRI investment. (3) Individual investors dislike ambiguity in the stock market and the ESG label help to resolve some ambiguity. This paper’s findings will help policy makers to better understand individual investors’ beliefs and reason for investing in ESG, so they can design more appropriate SRI portfolios.

Period	12 Nov 2019
Held at	Finance