The Impact of ESG Ratings on Stock Returns 
An Analysis of Swedish Large-Cap Companies
Bachelor Thesis in Finance 15 Credits
Authors:
Erik Strandberg
Gustav Tartu
Supervisor:
Zelalem Abay
Spring Term 2024
1
Abstract
This thesis investigates the impact of ESG (Environmental, Social, and Governance) scores 
on stock returns for large-cap companies listed on the Swedish stock market. The dataset, 
sourced from Refinitiv (Thomson Reuters), includes 114 companies from 2009 to 2023. Our 
findings indicate that higher ESG scores are significantly associated with negative stock 
returns, with environmental and social pillar scores showing negative impacts, while 
governance scores exhibit a slight positive but statistically insignificant effect. Additionally, 
the study examines the impact of ESG scores on systematic risk (Beta), revealing that higher 
ESG scores are associated with reduced systematic risk. The study supports both the risk 
mitigation theory and the over-investment theory, suggesting that higher ESG scores 
decrease total year returns. This provides insights into the financial implications of ESG 
investments and highlights the importance for investors and companies to balance financial 
performance with risk management and sustainability objectives.
Acknowledgment
We would like to express our deepest gratitude to our supervisor, Zelalem Abay, for his 
guidance, support, and encouragement throughout the course of our thesis work. His 
expertise and insightful feedback were crucial to the successful completion of this project.We 
also extend our sincere thanks to our opponents during the seminars. Your constructive 
criticism and thoughtful suggestions have been instrumental in refining our work and 
pushing us to achieve higher standards.
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Table of content
1. Introduction 4
1.1 Background         4
1.2 Problem description and problem analysis  6
1.3 Aim of the study   7
2. Previous research 8
2.1. Relevant articles and researches 8
2.2 Theoretical framework 12
2.3 Hypothesis development 14
3. Method 15
3.1 Method in general 15
3.2 Model specification 15
3.3 Variable descriptions 16
4. Data 19
4.1 Data collection 19
4.2 Cleaning the data 23
4.3 Descriptive statistics 23
5. Empirical results 26
5.1 Results 26
6. Discussion 30
6.1 The results 30
7. Conclusion 32
8. References 34
3
1. Introduction
1.1 Background
In recent years, the concept of sustainable investing has evolved to become an important 
aspect of global financial markets. Among stakeholders, there has been an increased 
awareness of the environmental, social, and governance factors that play an important role in 
corporate performance, risk, and returns on investments. 
There is an increased relevance of research in the growing collection of studies pointing to a 
positive correlation between higher ESG scores and better financial results. Research by 
Kim & Koo1 and Horton & Jessop2 indicates a positive potential on a global level, to 
enhance financial returns by focusing on positive ESG performance. Horton and Jessop dive 
deeper into how the different components of ESG individually drive financial performance, 
where higher environmental and governance scores seem to resonate more with investors 
than higher social scores. Additionally, results from Eratalay et al.3 indicate that higher ESG 
scores tend to reduce systematic risk for companies on the S&P Europe 350, which is 
important to consider when evaluating returns.
ESG creates a score for a company which is determined by how well it addresses risks in 
each criterion. It is referred to as a sustainability score and is useful for investors who 
consider a company’s sustainability and ethical conduct. These criteria have become a 
crucial element in the process of making investment decisions and measures of different 
sustainability pillar aspects. The environmental pillar reports on greenhouse gas emissions, 
pollution, water management, deforestation, biodiversity, and positive sustainability impacts. 
This pillar is the most complex to report. The social pillar reports on staff development, 
working practices, product safety, quality, and supply chain standards. The governance pillar 
reports on shareholder rights, board diversity, and corporate conduct that includes 
anti-competitive practices and corruption. It also measures compensation for executives and 
how it’s aligned to sustainability performance.4
1 Kim, R. and Koo, B. (2023), The impact of ESG rating disagreement on corporate value. Journal of Derivatives and Quantitative Studies, 
Vol. 31 No. 3, Pages 219-241.
2 Horton, C., & Jessop, S. (2022). Positive ESG performance improves returns globally, research shows. Reuters.
3 Eratalay, M. H., & Cortés Ángel, A. P. (2022). The Impact of ESG Ratings on the Systemic Risk of European Blue-Chip Firms.
4 Deloitte. (n.d) What is ESG? ESG Explained | Article series exploring ESG from the very basics. 
4
There are different sources of ESG scores, but in this study, we will focus on Refinitiv 
(Thomson Reuters) ESG Data, which delivers a score from 0 to 100, for both the total ESG 
score and the individual scores for E, S, and G. However, the system of ESG scores may 
include a risk of greenwashing, where companies may overstate some factors to achieve a 
good score, according to evidence found by Yu et al.5. This can be misleading since an ESG 
score does not necessarily reflect all of a company's sustainability efforts, since one of the 
ESG pillarscore may be overlooked. This issue arises because companies often self-report 
their sustainability and ESG scores. Still despite these concerns, ESG data is considered 
reliable and an overall good measure of sustainability, which makes it possible to conduct 
research on whether there's any significant correlation between ESG scores and stock 
returns. To support this, it can be highlighted how the new SFDR standard from 2023 
counteracts these concerns. The article by Laidlaw6 highlights how the SFDR Sustainable 
Financial Information Regulation addresses this issue. It is a strategy to make environmental, 
social, and governance investments more transparent and improve disclosure. SFDR 
provides sustainability reporting, changing the way companies produce, sell, and market 
ESG funds. Portfolio managers must assess sustainability risks in their investments to ensure 
they are accurate. By presenting  ESG scores and related risks, the investment decision for 
investors becomes clearer. This principle thereby establishes a standard that helps prevent 
greenwashing.
As sustainability gains increased global importance, the Nordic countries in particular are 
recognized as leaders in this area, according to a report by Scanlon7. Sweden, Denmark, 
Norway, Iceland, and Finland rank among the best according to the 2020 SDG Index 
(Sustainable Development Goals), which measures the countries' progress towards their 17 
global goals for sustainable development. Sweden performs particularly well in education, 
healthcare, and social security, as well as in the category of climate change and energy. This 
strong performance makes it interesting to further explore the effect of ESG ratings within 
Swedish companies on returns.
5 Yu, E. P., Luu, B. V., & Chen, C. H. (2020). Greenwashing in environmental, social, and governance disclosures. Research in 
International Business and Finance, Volume 52, 101192. 
6 Laidlaw, J. (2021). New EU ESG disclosure rules to recast sustainable investment landscape. S&P Global
7 Michael J. Scanlon. (2020). Nordics are pioneering the future of ESG. ESG Investing
5
1.2 Problem description and problem analysis
There are several factors influencing the complex relationship between ESG ratings and 
stock returns, including market conditions, quality of ESG reporting, and investor behavior. 
Although numerous studies indicate a positive relationship, others suggest a negative impact 
or that the impact is significant on a sector-specific level. For stakeholders, this uncertainty 
poses a challenge when evaluating and implementing ESG in the decision-making process. 
Evolving ESG criteria and regulations further add to the complexity of analyzing their 
impact on financial performance.
The Swedish markets are among the leaders in sustainability, and awareness about 
sustainability is a prevalent factor, according to Scanlon8. For large-cap companies operating 
in these markets, understanding this relationship may be critical to remaining competitive 
and keeping up with investor and customer expectations. In addition, specific ESG factors 
may vary in relevance across different industries, and the methodologies used by ESG rating 
agencies may vary as well. This further complicates the examination and assessment when 
determining the financial value of ESG factors.
Interpreting the causal relationship of stock returns on ESG depends on the significance 
levels. The choice of control variables will therefore be crucial. Gillian et al.9 argue that 
institutional investors and regulations influence companies' ESG behavior, which can be 
costly but beneficial for the company's future. The question is whether these companies will 
achieve better returns and improved forecasted profitability in the future because of this. It 
could be argued that sustainability investing is not yet worthwhile if better returns can be 
achieved through other strategies. 
Additionally, it is important to evaluate how ESG scores affect stock returns while 
considering systematic risk. If a stock with a higher ESG score improves stock return and 
systematic risk moves in the opposite direction, this could indicate a preferred investment 
strategy. However, if the expected return and expected systematic risk are correlated, it 
suggests a strategy for investing in less risky companies. To understand these suggestions, 
8 Michael J. Scanlon. (2020). Nordics are pioneering the future of ESG. ESG Investing
9 Gillian, S., Koch, A., Starks, L., 2021. Firms and social responsibility: A review of ESG and CSR research in corporate finance,  Journal 
of Corporate Finance, Volume 66, 101889. 
6
theories such as the over-investment view and risk mitigation will be taken into account to 
investigate these positions.
1.3 Aim of the study
The purpose of this study is to investigate the relationship between ESG (Environmental, 
Social, and Governance) ratings and stock returns. We want to expand the available 
empirical research in this field by exploring companies from the Swedish Large Cap. We 
also want to assess whether the individual ESG pillar scores (environmental, social, and 
governance) have individual effects on stock returns. This is important because each pillar 
represents different aspects of corporate sustainability and responsibility. By analyzing the 
individual effects, we can identify which aspects of ESG are most influential in driving 
financial performance. Additionally, we seek to evaluate whether higher ESG scores are 
associated with lower systematic risk (Beta). This will provide insights into the risk/reward 
benefits of ESG investing, which are relevant for understanding stock returns. Aligning with 
the principles of over-investment versus risk mitigation, this evaluation helps determine 
whether the potential for reduced risk justifies the impact on returns.
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2. Previous research
2.1. Relevant articles and researches 
The literature examining the relationship between corporate returns and ESG score differs. 
There are many different conclusions, but the common hypothesis of many is that higher 
ESG ratings should lead to higher returns. This is justified by the fact that it attracts more 
investors, minimizes risks and makes it easier for companies to operate in the current market 
with its main environmental challenges. Some studies have found significant relationships 
between E, S and/or G and return, while others have not. This is partly due to the use of 
different methods, varying time periods, and different selections of data in terms of which 
companies and countries are included.
Horton and Jessop10 investigate how the connection between ESG performance and financial 
returns is increasingly getting stronger globally. The authors highlight the evidence that 
companies with superior ratings not only attract more interest from investors but also 
outperform competitors. Their data shows that overall ESG performance can outperform the 
benchmark by 1.59% per year in Europe, looking at the years 2017-2022. Furthermore, the 
article highlights a growing unity about the financial merits of ESG scores among companies 
and investors. In the long run, there are tangible benefits and risk-return profiles. However, it 
is also discussed that the different components of ESG, have different impacts on financial 
performance. Companies with high governance metrics outperformed their benchmarks 
across all the regions that were analyzed. It indicates that companies with good governance 
measures tend to outperform the benchmark by as much as 2.17% in Europe. However, 
companies with higher social metrics, underperformed in some areas and overperformed in 
others. This can be due to social scores that can be ambiguous and hard to evaluate. 
Companies with high environmental metrics outperformed, but only by 0.21% in Europe. 
Compared to social factors, there seems to be more agreement on the value of environmental 
scores, as companies try to measure their impact on the climate.
La Torre et al.11 examine whether ESG factors affect returns by analyzing companies from 
the Eurostoxx50. Their analysis reveals that the effect varies from company to company, 
10  Horton, C., & Jessop, S. (2022). Positive ESG performance improves returns globally, research shows. Reuters.
11 La Torre, M., Mango, F., Cafaro, A., & Leo, S. (2020). Does the ESG Index Affect Stock Return? Evidence from the Eurostoxx50. 
8
with only 7 out of 46 companies experiencing significantly higher returns. This effect was 
most pronounced in the energy and utilities sectors. Due to this variability and the associated 
uncertainty, they conclude that it is not possible to definitively state that higher ESG scores 
affect returns, in contrast to the findings of Horton and Jessop.
In the discussion of the impact of ESG ratings on stock returns, it is crucial to mention the 
extraordinary impact of COVID-19 due to the stock market turbulence. Engelhardt et al.12 
explore the impact of ESG ratings on stock performance during the COVID-19 pandemic. 
They investigate if higher ESG ratings correlate with better stock performance in terms of 
abnormal returns and lower volatility in terms of risk. The key finding from the study 
indicates that during COVID-19, higher ESG ratings were associated with higher abnormal 
returns and lower stock volatility. The study also delves into how corporate social 
responsibility (CSR) yields financial benefits, considering both the perspectives of investors 
and the company itself. They conclude that companies with higher ESG scores had at least 
3.83% higher stock returns than companies with low ESG scores during the period from 
February 3 to March 23, 2020. However, this study only focuses on the short-term period 
during COVID-19 and the authors express interest in future research on the long-term effects 
of ESG ratings. Such a short period may not be indicative of true crisis effects or long-term 
investment strategies. 
While many studies point out a positive correlation between high ESG scores and superior 
financial performance, different factors can weaken this relationship, such as geographical 
location, quality of ESG reporting, and industry traits. This is investigated in the article by 
Gillian et al.13. This article provides an overview of the research landscape concerning ESG 
in corporate finance. The authors delve into how engagement in ESG activities is linked to 
firms’ financial performance, such as firm valuation, stock performance, and cost of capital. 
They mention how institutional investors and regulatory frameworks are contributing to 
firms' ESG behavior. Pressures from regulations and investors are forcing companies to 
implement ESG considerations in their operations. They believe that there is room for a 
more detailed analysis in this area where all aspects are taken into account.
12 Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis.
13 Gillian, S., Koch, A., Starks, L., 2021. Firms and social responsibility: A review of ESG and CSR research in corporate finance,  Journal 
of Corporate Finance, Volume 66, 101889. 
9
In similarity with Gillian et al, a study by Dyck et al.14 argues that higher institutional 
ownership positively correlates with improved E&S performance, indicating a potential 
causal relationship. The study examines how institutional investors influence corporate 
environmental and social (E&S) performance in 41 countries. Institutions are considered to 
be motivated by both financial returns and higher sustainability ratings, especially in 
countries with a strong belief in the importance of E&S issues.
Furthermore, Darolles et al.15 suggest, contrary to others, that the ESG rating is priced by the 
market and that higher ESG scores have a negative impact on future stock returns. They 
argue that the costs associated with high ESG performance might offset potential benefits, 
leading to no significant improvement in returns. They believe that E and S components, as 
well as overall ESG scores, have a negative effect on stock returns, while G has no effect. 
As previously mentioned, it is important to highlight the impact of how different industries 
affect ESG. A study by Matakanye et al.16 further discusses how companies in different 
industries respond to stakeholder pressures when prioritizing their environmental, social and 
governance (ESG) performance. The result indicates that companies in the industrial sector 
scored the highest ESG average, while technology companies scored the lowest. In addition, 
the analysis indicated that the financial- and healthcare sectors may have lower reporting 
rates, while the basic materials- and industrial sectors showed higher engagement in 
reporting. Despite these variations in scores and reporting habits between sectors, they 
couldn't find any significant differences in overall ESG ratings between the different 
industries. 
The impact of ESG on systemic risk is also closely examined. Eratalay et al.17 explore 
whether higher ESG ratings reduce the systemic risk of companies listed on the S&P Europe 
350 from January 2016 to September 2020. The result suggests that the volatility of a stock's 
return is a primary cause of systemic risk. The authors claim that companies with higher 
ESG ratings experience up to 7.3% less systemic risk compared to those with lower ratings. 
It was clear that COVID-19 had a higher effect on systematic risk while treating 2020 as a 
14Dyck, A., Lins, K. V., Roth, L., & Wagner, H. F. (2019). Do institutional investors drive corporate social responsibility? International 
evidence. Journal of Financial Economics Journal of Financial, Vol. 131, Issue 3, Pages 693-714
15 Darolles, S., Le Fol, G., & He, Y. (2024). Understanding the effect of ESG scores on stock returns using mediation theory. 
16 Matakanye, R. M., Van der Poll, H. M., & Muchara, B. (2021). Do companies in different industries respond differently to stakeholders’ 
pressures when prioritizing environmental, social and governance sustainability performance? 
17 Eratalay, M. H., & Cortés Ángel, A. P. (2022). The Impact of ESG Ratings on the Systemic Risk of European Blue-Chip Firms. 
10
dummy variable. It was also found that in 2020, environmental factors had no significant 
effect on systemic risk, but social factors tended to increase it and governance factors tended 
to decrease it.
Further research into why risks are managed is discussed by Utz18. His findings suggest that 
high CSR in firms from Europe mitigates financial risks, which is relevant for understanding 
stock returns. In contrast, he discovers that high CSR in Asia-Pacific companies tends to 
increase crash risk, in accordance with the over-investment hypothesis. As the main purpose 
of this study explores the idiosyncratic risk related to CSR, it leaves room for further 
research within the area of ESG and systematic risk. This is particularly important when 
considering the two theories of risk mitigation and over-investment view.
As we have examined factors that are important in accordance with ESG, Edmans19 instead 
emphasizes the importance of considering the long-term value of ESG ratings. In his article 
he advocates for integrating ESG into mainstream investing, and that it should be used to 
assess long-term value rather than being treated as a niche category. The author further 
argues that like other intangible assets, ESG factors have a significant impact on long-term 
shareholder value. There needs to be a shift from the conventional approach to ESG ratings 
towards a broader and inclusive understanding of how ESG can enhance financial and 
societal outcomes in the long run. 
The study by Engelhardt et al.20 examines the impact of Environmental, Social, and 
Governance (ESG) scores on stock performance during the COVID-19 pandemic. The 
findings reveal that higher ESG scores correlate with lower stock volatility and higher 
abnormal returns, indicating that firms with robust ESG practices were more resilient during 
the crisis. This supports the argument that sustainable investment decisions contribute to 
long-term financial stability, risk management and investor preference. The study highlights 
the importance of integrating ESG factors into investment decisions, especially during a 
global crisis.
18 Utz, S. (2017). Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States
19 Edmans, A., 2022. The end of ESG. Financial Management. Volume 52, Issue 1, Pages 3-17
20 Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis.
11
In previous research by Bekaert et al.21, it is suggested that long-term positive alpha is 
achievable by investing in a high ESG score portfolio. Jensen's alpha is a model by Michael 
Jensen that represents the abnormal return, above or below the return predicted by the 
Capital Asset Pricing Model (CAPM). It is a risk-adjusted measure of performance, as it is 
based on the investment's risk and expected return. In other words, generating alpha is 
equivalent to beating the market. However, this theory is crucial to consider while examining 
the effects of ESG scores, as the result will be useful for investors.
2.2 Theoretical framework
Over-investment View Theory
The over-investment view theory is a concept used to analyze how companies allocate their 
resources, emphasizing the potential consequences of allocating excessive resources to 
specific activities. According to this theory, excessive investment in any single area may not 
always result in positive financial returns and may even lead to higher financial risks.
Previous research, such as that by Utz22, has explored the relationship between high 
corporate social responsibility (CSR) and financial risk, suggesting that in certain scenarios, 
high CSR can impact risks due to over-investment. From a broader perspective, this theory 
implies that higher spending on achieving better performance in specific areas, such as 
environmental, social, and governance (ESG) metrics, can divert resources from other 
important business areas. Such reallocation may reduce profitability and affect financial 
returns. Specifically, over-investing in ESG might undermine a company's financial health 
by shifting focus and resources away from revenue-driving activities.
Investor perspectives on the implications of over-investment vary. Some investors appreciate 
high ESG and CSR scores for their potential long-term benefits, including risk mitigation, 
enhanced brand reputation, and alignment with ethical standards. On the other hand, some 
investors may be concerned about the short-term financial impacts, such as reduced 
profitability.23
21 Bekaert et al. (2023). Sustainable investment – Exploring the linkage between alpha, ESG, and SDGs. Volume 31, Issue 5, Pages 
3831-3842
22 Utz, S. (2017). Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States
23 Utz, S. (2017). Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States
12
This theory highlights the importance of continued research to explore the case for Swedish 
large-cap companies, examining the effects of ESG investments across various companies to 
refine the understanding of when and how these ESG investments can be most impactful.
Risk Mitigation Theory
Risk mitigation is a concept used in corporate finance that emphasizes how proactive 
measures can help reduce the potential negative impact of risk on organizations. The theory 
suggests that by taking careful and strategic actions, companies can reduce their exposure to 
negative events and enhance performance and stability. By identifying potential risks and 
implementing strategies to mitigate them, organizations can protect their assets, ensure 
smoother operations, and improve their financial health. This approach is essential for 
long-term sustainability and resilience in an economic environment that is constantly 
changing.
Research supports the risk mitigation theory's relevance to ESG practices. Findings by 
Eratalay et al.24 indicate that higher ESG ratings are associated with lower systematic risk for 
European firms. This means that companies with superior ESG performance are less 
exposed to market volatility and systemic shock, aligning with risk mitigation theory. By 
proactively managing ESG-related risks, firms can attain a more stable risk profile, which is 
valuable in turbulent economic times.
Moreover, engaging in sustainable practices can act as a form of insurance against adverse 
events. During crises such as natural disasters or social disruptions, companies with strong 
ESG practices may be better prepared to withstand and recover from disruptions. This can 
result in more consistent financial performance and lower risk premiums, benefiting both the 
companies and investors. The study by Utz25 highlights how CSR activities, indicated by 
ESG data, are associated with reduced risk of stock price crashes in the United States and 
Europe. This finding aligns with the Risk Mitigation Theory, showing that significant CSR 
activities can defend firms from financial downturns .
The relevance of risk mitigation in the context of ESG is further highlighted by regulatory 
trends and stakeholder expectations. Investors, customers, and regulators demand greater 
accountability and transparency regarding companies' ESG practices at an increasing rate. 
24  Eratalay, M. H., & Cortés Ángel, A. P. (2022). The Impact of ESG Ratings on the Systemic Risk of European Blue-Chip Firms. 
25 Utz, S. (2017). Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States
13
Firms that fail to address these demands may face higher costs of capital, reduced market 
access, and diminished brand value. On the other hand, those that actively manage ESG risks 
can benefit from enhanced reputations, stronger stakeholder relationships, and better 
financial performance. This relationship between ESG scores and reduced risk translates into 
improved stock returns, as investors favor firms that demonstrate resilience and 
sustainability in their operations26.
2.3. Hypothesis development
Inspired by the findings of Darolles et al.27, which suggest that higher ESG ratings do not 
necessarily generate abnormal returns due to the higher costs associated with these scores, it 
is reasonable to investigate the effect of ESG scores on the total year return (TYR) of 
companies. These higher costs might offset any potential benefits of higher ESG ratings, 
supporting the assumption that the over-investment view theory can explain this. As 
sustainability gains increased global importance, particularly in the Nordic countries where 
Sweden is performing exceptionally well according to Scanlon28, it is pertinent to examine 
the effects of ESG on Swedish large-cap companies. Furthermore, Horton & Jessop29 found 
that environmental, social and governance scores had a positive impact on returns in europe. 
Therefore it is reasonable to investigate their individual impact on return separately.  
Additionally, following the discussion of Eratalay et al.30, which explores that companies 
with higher ESG ratings tend to experience lower systematic risk, it is reasonable to believe 
that the risk mitigation theory can explain this. Therefore, the null hypotheses that will be 
tested through the regressions are the following:
H1: ESG scores have no effect on total year return.
H2: Environmental, social, and governance scores have no individual effects on total year 
return.
H3: ESG scores have no effect on systemic risk (Beta).
26 Utz, S. (2017). Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States
27Darolles, S., Le Fol, G., & He, Y. (2024). Understanding the effect of ESG scores on stock returns using mediation theory. 
28Michael J. Scanlon. (2020). Nordics are pioneering the future of ESG. ESG Investing
29Horton, C., & Jessop, S. (2022). Positive ESG performance improves returns globally, research shows. Reuters.
30Erataltay, M. H., & Cortés Ángel, A. P. (2022). The Impact of ESG Ratings on the Systemic Risk of European Blue-Chip Firms. 
14
3. Method
3.1 Method in general 
This thesis will adopt a quantitative method, relying on ESG ratings for publicly listed 
large-cap companies in Sweden, along with their stock returns. Data will be sourced from 
Refinitiv (Thomson) and analyzed in Stata using Ordinary Least Squares (OLS) regression, 
with stock return as the dependent variable and ESG rating as the independent variable. To 
further investigate the ESG rating components, we will conduct an additional regression 
using each sustainability variable- environmental, social, and governance- as independent 
variables to determine their individual impacts on returns. Additionally, we will conduct a 
third regression model to explore the effect of ESG ratings on systematic risk (Beta), treating 
Beta as the dependent variable. By incorporating control variables, we aim to obtain the 
most detailed relationship possible. As a complement to the regressions, we present a table 
of each industry sector's mean ESG scores and number of observations to highlight the ESG 
differences.
To ensure the appropriateness of the model, a Hausman test will be performed to decide 
between fixed and random effects models. Additionally, to address potential 
heteroscedasticity and within-firm correlation, standard errors will be clustered at the firm 
level. This method provides more robust standard error estimates, accounting for the fact 
that observations within the same firm may not be independent over time.
3.2 Model specification 
Model 1:
𝑅 = 𝛃 + 𝛃 𝐸𝑆𝐺 + 𝛃 𝐶𝑉 + 𝐹 + 𝑈
𝑖.𝑡 0 1 𝑖,𝑡−1 𝑗 𝑖,𝑡−1
Model 2:
𝑅 = 𝛃 + 𝛃 𝐸𝑁𝑉 + 𝛃 𝐺𝑂𝑉 + 𝛃 𝑆𝑂𝐶 + 𝛃 𝐶𝑉 + 𝐹 + 𝑈
𝑖.𝑡 0 1 𝑖,𝑡−1 2 𝑖,𝑡−1 3 𝑖,𝑡−1 𝑗 𝑖,𝑡−1
Model 3: 
𝐵𝑒𝑡𝑎 = 𝛃 + 𝛃 𝐸𝑆𝐺 + 𝛃 𝐶𝑉 + 𝐹 + 𝑈
𝑖.𝑡 0 1 𝑖,𝑡−1 𝑗 𝑖,𝑡−1
15
The dependent variable (R) is the one-year total return of a firm i at year t. β0 is the intercept 
and ESG is the independent variable and refers to the one-year lagged value of the ESG 
rating of firm i. CVi,t-1 is the set of control variables for firm i at year t-1. In our first and 
second regressions, the control variables are Beta, P/E ratio, Total Debt to Total Assets ratio, 
ROA, and the natural logarithm of Market Capitalization. In our third regression, the control 
variables are P/E ratio, Total Debt to Total Assets ratio, ROA, and the natural logarithm of 
Market Capitalization. F is the fixed effects and in the regressions, and it represents industry 
fixed effects and year fixed effects. U is the error term and represents all unobserved factors.
The ESG rating consists of three components; Governance (GOV), Environmental (ENV) & 
Social (SOC), all of which are used as separate independent variables in Model 2.
In model 3, Beta is treated as the dependent variable while using ESG as the independent 
variable. 
The regressions are run using a random-effects model for panel data. When using panel data, 
fixed-effects models could also be considered as such models take unobserved heterogeneity 
into account. To determine if a fixed-effects model would be more appropriate, a Hausman 
test was conducted. The Hausman test helps identify if unobserved errors are correlated with 
the regressors, which would indicate that a fixed-effects model would be more suitable. The 
test results were Prob > chi2 > 0.05. It could therefore be concluded that there is no 
systematic difference between the fixed-effects and random-effects models. Therefore, the 
random-effects model is preferred.
3.3 Variable descriptions
The independent variables are lagged based on the rationale that financial markets may 
require time to respond to changes in a company’s ESG ratings. This approach also aligns 
with the annual financial and sustainability reporting cycles. 
Regarding the firm level control variables, each firm's market capitalization is controlled by 
using the natural logarithm. The substantial differences in size among the firms make this 
transformation essential for handling variations in scale effectively as well as ensuring a 
more robust analysis. 
16
Return on Assets (ROA) is used to control for profitability and efficiency in generating 
profits from its assets. High ROA indicates effective asset utilization, attracting investors 
and positively impacting stock returns. Furthermore, we control for aspects concerning 
financial risk. Including Beta as a control variable accounts for the systematic risk associated 
with the stock. High Beta stocks are considered riskier but may offer higher returns, 
impacting overall stock performance. Incorporating Beta helps explain variations in stock 
returns due to market risk . In addition, we control for the Total Debt to Total Assets ratio, as 
previous research highlights the relationship between these aspects and stock return. Firms 
with higher debt-to-assets ratios are associated with higher volatility, which can significantly 
affect their stock performance during periods of market instability31. 
The P/E ratio is chosen as a control variable due to its impact on stock returns and 
interaction with ESG factors. The study by Naffa et al.32  demonstrates that certain 
ESG-themed investments yield positive returns, though these effects can be nuanced when 
considering valuation metrics such as the P/E ratio. By controlling for the P/E ratio, we 
ensure that the impact of ESG on stock returns is not conflated with market valuation effects.
Regarding the fixed effects, industry and year are being controlled for. This is done with 
reasoning that the fixed effects can help isolate the impact of ESG score on stock returns 
from industry and time specific factors. 
The choice of control variables have been used in the existing literature with inspiration 
taken from Engelhart et al33. A difference is the choice to control for the P/E ratio and 
company market cap instead of total assets.
In addition to using Beta as a control variable to explain stock returns, Beta is also treated as 
a dependent variable with ESG as the independent variable. This approach is inspired by 
Pistolesi and Teti34, who found that higher ESG scores are related to lower systematic risk, 
while controlling for leverage, profitability, size and growth measures.They additionally 
control for ROA and the Debt to Assets ratio. Our model differs by using Market 
31 Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis.
32 Naffa, H., & Fain, M. (2020). Performance measurement of ESG-themed megatrend investments in global equity markets using pure 
factor portfolios methodology. 
33 Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis.
34 Pisotlesi & Teti. (2024). Shedding light on the relationship between ESG ratings and systematic risk. Volume 60, 104882.
17
Capitalization as the size measure and the Price-to-Earnings (P/E) ratio as the growth 
measure.
18
4. Data
4.1 Data collection 
Data for the variables used in the analysis of this study have been collected from the 
Thomson Reuters dataset Refinitiv Eikon, which provides financial data on listed 
companies. In this data collection, we have focused on a selection of Swedish large-cap 
companies, each with a market value exceeding 1 billion euros in 2023. All variables that are 
collected are based on the companies' fiscal years. The data have enabled the performance of 
a time series analysis, which involves comparisons of different variable values over time. 
The data is collected over the last 15 years (2009-2023). This 15-year period facilitates 
future forecasts and includes data from various business cycles. 
The ESG scores, which vary between 0 and 100, are based on self-reported information. 
These scores serve as measures of the company's overall sustainability performance and also 
in the specific categories of environment, social, and governance. Our final sample includes 
114 companies listed on the Stockholm Stock Exchange, with a primary focus on B shares, 
as these are often the most traded. The observations are used in a cross-sectional time-series 
(panel) data format, utilizing 1-year lagged data and applying fixed effects for industries and 
years.
Table 1: Variables and variable definitions 
Variable Variable definition Variable name (code)
ESG The ESG Score is a ESG Score
comprehensive rating of a TR.TRESGScore
company based on 
self-reported data across 
three key areas: 
environmental, social, and 
corporate governance. 
(Source: Refinitiv Eikon)
19
Total Debt to Total Assets The debt-to-assets ratio Total Debt/Total Assets %
ratio (TotDTotA) indicates what proportion of TR.TotDebtTotAssetsPct
a company's assets is 
financed through debt. A 
higher ratio suggests that a 
greater portion of the 
company’s assets are funded 
by borrowing and a lower 
ratio indicates less reliance 
on debt.
(Source: Refintiv Eikon)
Total Year Return (TYR) The one year total return 52 Week Total Return 
measures the percentage TR.TotalReturn52Wk
change in a company's stock 
price over a period of one 
year.
(Source: Refintiv Eikon)
EnvironmentalPillarScore The Environmental score EnvironmentalPillarScore 
(ENV) rates a company's effects on TR.EnviromentPillarScore
natural systems—like air, 
land, water, and ecosystems. 
It indicates how well the 
company manages its 
environmental practices to 
minimize risks and seize 
opportunities.
(Source: Refinitiv Eikon)
20
SocialPillarScore (SOC) The social score rates a SocialPillarScore
company on how well it TR.ScoialPillarScore
builds trust and loyalty with 
its employees, customers, 
and community through 
good management practices. 
It shows the company's 
reputation and its ability to 
operate sustainably.
(Source: Refinitiv Eikon)
GovernancePillarScore The governance score rates a GovernancePillarScore 
(GOV) company's systems and TR.GovernancePillarScore
processes that ensure its 
leaders act in the best 
interest of long-term 
shareholders. It measures 
how effectively the company 
uses top management 
practices to manage its 
rights and responsibilities.
(Source: Refinitiv Eikon)
Price to Earnings ratio The price-to-earnings ratio P/E (Daily Time Series 
(PEratio) measures a company's ratio)
current share price relative TR.PE
to its per-share earnings. The 
variable shows the P/E-ratio 
at the end of the fiscal year.
(Source: Refinitiv Eikon)
Beta Beta is a measure of how Beta
much the stock moves for a TR.WACCBeta
given move in the market. It 
21
is the covariance of a 
security’s price movement in 
relation to the market’s price 
movement.
(Source: Refinitiv Eikon)
Return on Assets (ROA) Return On Assets is a Return On Assets
profitability ratio and gauges TR.InvReturnOnAssets
the return on investment of a 
company. It measures the 
operating efficiency 
regardless of a company’s 
financial structure. 
(Source: Refinitiv Eikon)
Company Market The Company Market Company Market 
Capitalization (MC) Capitalization represents the Capitalization
sum of market value for all TR.CompanyMarketCapitali
relevant issue level share zation
types.
(Source: Refinitiv Eikon)
Industry Industry comes from The TRBC Industry Group 
Refinitiv Business Name
Classification (TRBC). TR.TRBCIndustryGroup
TRBC classifies companies 
with increasing granularity 
by economic sector, business 
sector, industry group, 
industry and Activity.
(Source: Refintiv Eikon
Table 1 presents the variable names, definitions, and the database from which they were collected 
and the variable codes.
22
4.2 Cleaning the data
During the primary data collection phase, we gathered data from 114 companies, focusing on 
those with a market capitalization exceeding 1 billion euros. However, some companies 
were excluded because they had not been listed on the stock exchange long enough to 
provide sufficient data. Additionally, continuous ESG reporting was not available for all 
these companies. To address this, we primarily conducted unbalanced regressions using 
Stata, which is capable of handling missing values. We also performed regressions with a 
balanced dataset by excluding companies with missing variables, reducing the number of 
companies analyzed to 35, but there were no significant differences. Therefore the 
unbalanced dataset with 114 companies was preferred. In considering how to handle 
potential outliers in the dataset, we evaluated the option of winsorizing the data to mitigate 
the impact of extreme values. In considering how to handle potential outliers in our dataset, 
we evaluated the option of winsorizing the data to mitigate the impact of extreme values. 
Upon thorough examination, we found that there were no extreme outliers present in our 
dataset. Consequently, we decided against winsorizing that it was unnecessary and the data's 
integrity was maintained without this adjustment.
4.3 Descriptive statistics 
Our dataset comprises 114 Swedish large-cap companies. The tables below present 
descriptive statistics. Table 2 provides a general summary of the dependent, independent, 
and control variables, including the number of observations, mean, standard deviation, and 
the minimum and maximum values for each variable. Table 3 offers an overview of the 
number of observations and the mean ESG score for each industry.
23
Table 2: Summary of variables
Table 2 provides detailed information for each variable, including the total number of observations, the mean, 
the standard deviation, and the minimum and maximum observed values.
24
Table 3: Observations and Mean ESG Score by Industry
Table 3 details the number of observations collected from each industry and the mean ESG score for each 
industry.
25
5. Empirical results
In this section, three different models will be presented. The first model tests the total year 
return on the overall ESG score. By adding control variables and using fixed effects, it 
explains the differences in the impact on returns. Similarly, the second model separates ESG 
into its three pillar scores: Environmental, Social, and Governance. The third model instead 
uses Beta as the dependent variable. 
5.1 Results
Table 4: Regression results from random-effects model one year lag
TYR TYR TYR TYR
(1) (2) (3) (4)
ESG -.0029*** -.0039*** -.0045*** -.0033**
(.0008) (.0013) (.0015) (.0013)
Beta -.0399 -.0915 -.0743
(.0517) (.0671) (.0581)
TotDTotA -.0217 -.0044 -.1209
(.1818) (.2262) (.1943)
PEratio  .0019*** .0022*** .0022***
(.0003) (.0004) (.0003)
ROA  1.5797*** 1.6409*** 1.4429***
(.3834) (.4314) (.3675)
ln_MC  .0524** .0553** .0299
(.0207) (.0231) (.0199)
_cons 0.371*** - .9854** -1.2545** -.6669
(.0480) (.4919) (.6083) (.5170)
IndustryFE No No Yes Yes
YearFE No No No Yes
Observations 896 496 496 496
Chi-square 13.06 86.74 118.10 351.62
Standard errors are in parentheses
*** p<.01, ** p<.05, * p<0.1
Column 1 presents the regression results using total year return and ESG. Column 2 incorporates the control 
variables, while column 3 includes the industry fixed effects. Column 4 further adds the year fixed effects. All 
regressions are conducted using a random effects model with standard errors clustered at the firm level.
26
The first regression examines the relationship between ESG scores and total year return 
(TYR) without any control variables. It yields a coefficient of -0.0029, with a significance 
level of 1%. When the control variables are added (Beta, TotDTotA, PE ratio, ROA, and 
ln_MC), the ESG coefficient decreases further to -0.0039, still significant at the 1% level. 
When including industry-fixed effects in the third regression, the ESG coefficient changes to 
-0.0045, maintaining significance at the 1% level. In the fourth regression, with the addition 
of year-fixed effects, the ESG coefficient changes to -0.0033, with a significance level of 5% 
instead of 1%. 
For the control variables, PEratio and ROA have positive coefficients and remain significant 
at the 1% level throughout the second, third, and fourth regressions. ln_MC is significant at 
the 5% level in the second and third regressions but becomes insignificant in the fourth 
regression when both industry and year fixed effects are included. Beta and TotDTotA 
remain insignificant throughout all four regressions.
Table 5: Regression results from random-effects model one year lag by individual pillar 
score
TYR TYR TYR TYR
(1) (2) (3) (4)
ENV -.0014* -.0018* -.0029*** -.0024***
(.0008) (.0010) (.0013) (.0011)
SOC -.0013 -.0023 -.0034** -.0027**
(.0010) (.0015) (.0017) (.0015)
GOV .0000 .0003 .0012 .0015
(.0007) (.0009) (.0010) (.0009)
Beta -.0186* -.0950 -.0712
(.0479) (.0672) (.0580)
TotDTotA -.0671 -.0846 -.1853
(.1692) (.2282) (.1953)
PEratio  .0018*** .0022*** .0022***
(.0003) (.0004) (.0003)
ROA  1.4072*** 1.6760*** 1.4752***
(.3611) (.3611) (.3632)
ln_MC  .0524*** .0724*** .0469***
(.0193) (.0193) (.0204)
_cons 0.3574*** - .9871*** -1.2565** -.6685
(.0510) (.4517) (.6141) (.5278)
IndustryFE No No Yes Yes
27
YearFE No No No Yes
Observations 896 496 496 496
Standard errors are in parentheses
*** p<.01, ** p<.05, * p<0.1
The individual ESG pillar scores are treated as independent variables simultaneously. Each pillar score was 
tested individually, but the results were equivalent to those obtained by including all of them simultaneously. 
Since there were no significant changes in the coefficients, we decided to use the model that included all of 
them. Column 1 presents the regression results using total year return and each pillar score. Column 2 
incorporates the control variables, while column 3 includes the industry fixed effects. Column 4 further adds 
the year fixed effects. All regressions are conducted using a random effects model with standard errors 
clustered at the firm level.
The first regression tests the relationship between each individual ESG pillar score (ENV, 
SOC, GOV) and total year return (TYR) without any control variables. The coefficient for 
the environmental score is -0.0014, significant at the 10% level. The coefficient for the 
social score is -0.0013, but it is not significant. In similarity, the governance score, with a 
coefficient of 0.0000, finds no significance. 
When adding control variables (Beta, TotDTotA, PE ratio, ROA, and ln_MC), the 
relationships change slightly. The coefficient for the environmental score decreases further 
to -0.0018, still significant at the 10% level. The coefficient for the social score also 
decreases further to -0.0023, but remains insignificant. The coefficient for the governance 
score changes to 0.0003 and remains insignificant.
In the third regression, industry-fixed effects are added, resulting in further changes. The 
coefficient for the environmental score decreases to -0.0029 and becomes significant at the 
1% level. The coefficient for the social score decreases to -0.0034 and becomes significant at 
the 5% level. The coefficient for the governance score remains insignificant with a 
coefficient of 0.0012.
In the fourth regression, the final conditions are modified by adding year-fixed effects. The 
coefficient for the environmental score changes to -0.0024, still significant at the 1% level. 
The coefficient for the social score changes to -0.0027, still significant at the 5% level. The 
governance score coefficient remains insignificant with a coefficient of 0.0015.
28
For the control variables, PEratio, ROA, and ln_MC have positive coefficients and remain 
significant at the 1% level throughout the second, third, and fourth regressions. TotDTotA is 
insignificant in all regressions. Beta has a negative coefficient in the first regression with a 
10% significance level, but it is insignificant in the third and fourth regressions.
Table 6: Regression results from random effects model one year lag on Beta
BETA
ESG -.0028***
(.0011)
TotDTotA -.1819
(.1566)
PEratio .0002
(.0002)
ROA .1810  
(.2965)
ln_MC -.0234
(.0159)
_cons 1.8162***
(.3740)
IndustryFE Yes
YearFE Yes
Observations 496
Standard errors are in parentheses
*** p<.01, ** p<.05, * p<0.1
The column presents the regression results of testing Beta against ESG. The regressions were performed using 
the final random effects model, incorporating all control variables as well as fixed effects for both industry and 
year. The reason for only running one regression with ESG as an overall score is due to the lack of significance 
found when treating E, S, and G separately. By adding control variables and controlling for year and industry, 
a significance level of 1% was found instead of the previous 5% significance level. 
As seen by controlling for TotDTotA, PE ratio, ROA, and ln_MC and industry and year 
fixed effects, the coefficient for ESG is -0.0028, with a significance level of 1%. This 
indicates that higher ESG scores are associated with lower Beta values and therefore tend to 
have lower systematic risk.
All the control variables are found to be insignificant in this regression model.
29
6. Discussion
6.1 The results
The analysis of the data reveals several key findings regarding the relationship between ESG 
scores and stock returns for large-cap companies listed on the Swedish stock market. The 
random regression models employed in this study examined the impact of ESG scores on 
total year return (TYR). The results indicate that higher ESG scores are significantly 
associated with negative stock returns. Specifically, the coefficient for ESG in the 
random-effects model is -0.0029, significant at the 1% level. This negative relationship 
remains even after adding the control variables. The inclusion of industry and year fixed 
effects further validates these findings. Similar to Darolles et al.35, the results indicate no 
possibility of abnormal returns when investing in companies with higher ESG scores. The 
study explains that higher ESG scores increase demand from investors, driving up stock 
prices and consequently leading to lower returns due to overvaluation. Another perspective 
from the study suggests that investments in ESG initiatives may not translate into improved 
financial performance immediately, thereby impacting stock returns negatively.
The persistent negative relationship between ESG scores and stock returns supports the 
over-investment theory, suggesting that resources allocated to ESG activities may divert 
from other profitable activities, thereby reducing returns. This could be because high ESG 
performance may be costly and harmful to a company's financial health. This aligns with the 
conclusions drawn by Darolles et al.36, that the ESG rating is priced by the market and that 
higher ESG scores have a negative impact on future stock returns. Their findings suggest 
that the costs associated with high ESG performance might offset potential benefits, leading 
to no significant improvement in returns.
Our second random-effects model suggests that there are differences within each pillar score 
of environmental, social, and governance. Both environmental and social scores suggest a 
negative effect on stock returns, even when including control variables and industry and year 
fixed effects. Our results show these relationships as negative, with significant coefficients 
of -0.0024 for environmental and -0.0027 for social scores, while governance implied no 
35 Darolles, S., Le Fol, G., & He, Y. (2024). Understanding the effect of ESG scores on stock returns using mediation theory.
36 Darolles, S., Le Fol, G., & He, Y. (2024). Understanding the effect of ESG scores on stock returns using mediation theory.
30
statistical significance. This is contrary to the findings of Horton & Jessop37. Their results 
show a positive impact of higher governance ratings and also found positive impacts for the 
environmental and social pillars. 
Additionally, our results from the third model reveal a significant negative relationship 
between Beta and ESG scores. Higher ESG scores for companies indicate reduced 
systematic risk, which aligns with the principles of the risk mitigation theory. This theory 
claims that companies engaging in strong ESG practices can reduce their exposure to various 
risks, including financial and reputational risks, thereby enhancing their stability. The lower 
Beta values associated with high ESG scores suggest that these companies have a lower risk 
profile. While this typically aligns with the expectation of lower returns for lower risk, it 
also underscores the challenge of achieving positive Jensen's Alpha with high ESG 
investments.
Furthermore, Price-to-Earnings (P/E) ratios have a significant relationship with total year 
return in both model 1 and 2, with a consistent coefficient of 0.0022. The P/E ratio 
represents the valuation and growth expectations of companies, reflecting higher expected 
profitability. This finding aligns with previous research, such as the study by Naffa et al.38, 
which demonstrates that certain ESG-themed investments yield positive returns. P/E ratios 
tend to be perceived as having better growth expectations, thereby attracting more investors 
and driving up stock prices.
From model 1 and 2, it can be concluded that ROA has a significant and positive 
relationship with total year return. For each unit increase in ROA, return increases by 
1.4429%, indicating a strong correlation between ROA and total year return. Similar results 
are observed for separate regressions of Environmental, Social, and Governance scores, 
where a one-unit increase in ROA leads to a 1.4752% increase in total year return. These 
findings support the study by Engelhardt et al.39, which highlights that high ROA indicates 
effective asset utilization, thereby attracting investors and positively impacting stock returns.
37 Horton, C., & Jessop, S. (2022). Positive ESG performance improves returns globally, research shows. Reuters.
38 Naffa, H., & Fain, M. (2020). Performance measurement of ESG-themed megatrend investments in global equity markets using pure 
factor portfolios methodology. 
39 Engelhardt, N., Ekkenga, J., & Posch, P. (2021). ESG Ratings and Stock Performance during the COVID-19 Crisis.
31
7. Conclusion
This study aimed to investigate the relationship between ESG scores and stock returns, for 
Swedish large-cap companies. Additionally, it investigates the impact of ESG scores on 
systematic risk. Our findings indicate that higher ESG scores are significantly associated 
with negative stock returns, aligning with the over-investment theory which suggests that 
excessive spending on ESG activities may divert resources from more profitable activities. 
The results also show that the individual pillars of ESG scores- environmental, social, and 
governance differ from each other with individual effects, with both environmental and 
social scores negatively impacting stock returns. This conclusion is in line with the findings 
from Darolles et al.40. The distinct negative impacts of environmental and social scores on 
returns highlight the need for tailored ESG strategies that consider the specific financial 
effects of each ESG pillar. Additionally, we found that higher ESG scores are linked to lower 
systematic risk, supporting the risk mitigation theory. This also reinforces the findings of 
Eratalay et al41. 
The key contribution of this research is its insight into the financial implications of ESG 
investments on Swedish Large Cap companies. Our findings further highlight the importance 
for investors and companies to balance financial performance with risk management and 
sustainability objectives. The primary beneficiaries of this research include investors, 
financial analysts, and corporate managers who are evaluating and integrating ESG activities 
into their decision-making processes. By understanding the trade-offs between returns and 
stability, stakeholders can make more informed investment and strategic decisions.
However, the study is not without limitations. These ESG scores are self-reported by 
companies, which can raise concerns about their accuracy and potential biases. Another 
notable limitation is the presence of missing values in our dataset. ESG data was lacking for 
many firms, particularly in the early years of the analyzed period, as companies did not 
consistently report this information. 
Future research should aim to include a larger and more diverse sample, explore different 
market contexts, and consider a longer time frame to validate and expand on these findings. 
40 Darolles, S., Le Fol, G., & He, Y. (2024). Understanding the effect of ESG scores on stock returns using mediation theory. 
41 Erataltay, M. H., & Cortés Ángel, A. P. (2022). The Impact of ESG Ratings on the Systemic Risk of European Blue-Chip Firms.
32
Additionally, future studies could benefit from using ESG data from multiple sources to 
enhance the robustness and comparability of the results. If the results had suggested a higher 
return and lower risk, it would have indicated a positive alpha. This leaves room for a further 
detailed analysis within the area of exploring Jensen's alpha. 
33
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