Graduation Year

2026

Date of Submission

11-2025

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Professor Benjamin Gillen

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© 2025 Rohaan Bhojwani

Abstract

Existing research has produced conflicting conclusions on whether environmental, social, and governance (ESG) characteristics are efficiently priced in equity markets. While some studies argue that ESG performance improves firm value through lower risk and stronger fundamentals, others suggest that investor demand has inflated valuations in the past beyond intrinsic worth. This thesis examines whether ESG-driven valuation gaps represent justified pricing through firm fundamentals or systematic mispricing using Bartram and Grinblatt’s Agnostic Fundamental Analysis Framework (2018).

For this paper, I analyze the top 1000 U.S public firms by market value. I regress the market value on 19 accounting fundamentals for these firms in 2015, 2020, and 2025. Through this, I estimate firm-specific misvaluations as residuals from Bartram and Grinblatt’s cross-sectional valuation regression and test their relationship with LSEG (previously known as Refinitiv) ESG scores. I also control for sectoral effects. My findings reveal a time-varying pattern. I have a positive green premium in 2015, insignificance in 2020, and a reversal by 2025. In 2025, firms with higher ESG scores trade at valuation discounts. These results are consistent with ESG score functioning as a cyclical sentiment variable or as a state-dependent pricing factor, contributing new evidence on the transience of ESG mispricing in U.S. capital markets.

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