A paper that examines how the role of environmental, social and governance ratings affect stock prices has won this year's Richard A. Crowell Prize.
George Serafeim and Aaron Seokhyun Yoon won the prize for their paper "Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreements."
The prize, sponsored by PanAgora Asset Management, recognizes research that connects theory with application in the field of quantitative investment management.
Mr. Yoon, assistant professor of accounting and information management at Northwestern University's Kellogg School of Management, said in a phone interview that the paper uses TrueValue Labs' ESG sentiment score to determine whether different ESG ratings employed by different firms such as MSCI and Bloomberg can predict ESG news.
"Basically, what we find is that the latest ESG ratings do have some predictive ability in terms of predicting true ESG news," Mr. Yoon said.
The paper took into account disagreements between data vendors as well.
"Different raters have different predictive ability," Mr. Yoon said. "We're using this feature to actually predict future stock returns which I think has a lot of implications to the asset management and also companies and data vendors."
Co-author Mr. Serafaim is professor of business administration and faculty chairman of the Impact-Weighted Accounts Project at Harvard Business School.
Eric Sorensen, PanAgora's president and CEO, said in a news release announcing the award: "The paper selected as the Crowell Prize winner this year contributes meaningfully to understanding the factors impacting investment in (ESG) at a time when it is more important than ever to the global investment community."
The prize, which has been awarded annually since 2001, is named for Richard A. Crowell, PanAgora's founder and a pioneer in the field of quantitative investing.
