Does ESG performance and investor attention affect stock volatility? An empirical study based on panel data and mixed - frequency data

It has been extensively demonstrated that ESG (Environmental, Social, and Governance) has an impact on corporate risk, but the further effects of ESG on stock volatility are still unclear. This study examines the effects of ESG on stylized facts and long-run components of stock volatility from the perspectives of firms and investors, respectively, and utilizes a dataset comprising A-share listed firms from 2011 to 2023. Our findings are as follows. First, ESG performance negatively affects volatility persistence and positively affects volatility asymmetry. When the main explanatory variable is lagged by one period, a one unit increase in ESG performance significantly reduces volatility persistence by 0.003 units and significantly increases volatility asymmetry by 0.006 units. When lagged by two periods, there is a significant decrease in volatility persistence by 0.005 units, while volatility asymmetry still significantly increases by 0.006 units. Second, ESG investor attention negatively affects the long-run component of volatility. When ESG investor attention is at the optimal lag order of K = 2, an increase of one unit reduces the long-run component of volatility by 0.095 units. The conclusions remain robust after a series of robustness tests. Our study provides empirical support for comprehending how ESG affects stock volatility, and offers new insights for investors to effectively avoid stock market risks.