News Sentiment, ESG Performance and Stock Returns: Evidence from Large-Cap Stocks in Sweden, Denmark and Finland

Abstract

This thesis examines whether firm specific business and financial news sentiment has an impact on stock returns in three selected Nordic equity markets and whether a firm’s ESG performance moderates this relationship. The study adopts a quantitative research design and focuses on 78 large-cap stocks listed on Nasdaq OMX Stockholm 30, OMX Copenhagen 25 and OMX Helsinki 25 for the period from 2023 to 2025. The study constructs a news sentiment index using FinBERT and uses both daily and monthly excess returns for the analysis. ESG scores are used as a proxy to measure ESG performance and the Fama French three factor model is applied to account for systematic risk. Findings of the study show that news sentiment is statistically significant and that it has a strong contemporaneous impact on stock returns, but that there is no forward predictability beyond the news day or news month. An asymmetric effect is identified between positive and negative sentiment, where positive sentiment has a stronger contemporaneous impact on returns than negative sentiment. ESG performance is also found to moderate the relationship between news sentiment and stock returns, with high ESG firms being less affected by negative news sentiment than low ESG firms. Overall, the results indicate that news sentiment has a contemporaneous effect on stock returns for large-cap stocks in Sweden, Denmark and Finland.