We look at a technique of classification, based on convergent and divergent patterns of returns that has been applied to hedge funds and alternative investments, and apply it to US equity investment styles with a particular interest in ESG. We extend the technique by looking at the impact of price changes on factor-mimicking portfolio weights. This analysis leads to powerful insights into style return dynamics. In particular, an ESG-ranked long-short portfolio looks more like momentum than value.
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We thank Michael Steliaros, Oliver Williams and seminar participants at Goldman Sachs Asia Conference and Royal Holloway Finance Conference, University of London, for valuable comments.
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Gao, Y., Satchell, S. & Srivastava, N. Styles through a convergent/divergent lens: the curious case of ESG. J Asset Manag (2020) doi:10.1057/s41260-019-00146-0
- Factor-mimicking portfolio