Is there an ESG anomaly? Using textual analysis to detect market mispricing
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- Master Thesis 
This thesis investigates the relationship between stock returns and ESG scores on primary listed firms on the three major Scandinavian stock exchanges between 2017 and 2021. In conducting the analysis, we have collected ESG scores from Refinitiv and designed two scores based on textual analysis of the companies’ annual reports from 2015 to 2019. A two-year lag is applied between the ESG scores and the financial data to ensure that ESG information is known before the returns are produced, and the connection can be explained. We analyze the difference in stock returns on firms with high and low ESG score by constructing long-short portfolios. Then, we apply the Fama-French three-factor and five-factor models to control for different risk exposures. The ESG-based portfolio shows no abnormal return using either ESG scores, which suggests that the ESG risk is priced in the market.