ESG factors and the cross-section of expected stock returns: A LASSO-based approach

We analyze high-dimensional factor data in the U.S. market to examine whether the ESG (environmental, social, and governance) factors help explain the cross-section of expected stock returns. To avoid omitted variable biases, we use the double-selection LASSO approach with more than 160 risk factors. ESG and environmental factors potentially explain the cross-section of stock returns and can also affect investors' marginal utility.