Portfolio management of ESG-labeled energy companies based on PTV and ESG factors

• Published in: Energy economics Vol. 134; p. 107545
• Main Authors: Díaz, Antonio, Esparcia, Carlos, Alonso, Daniel, Alonso, Maria-Teresa
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-06-2024
• Subjects: Energy; ESG; Portfolio management; Prospect theory; Prospect theory; Q56; Energy; G41; G11; ESG; G15; Performance; Portfolio management
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2024.107545

This paper evaluates monthly quartile portfolios of ESG-labeled companies constructed based on their Prospect Theory Value (PTV) and ESG scores in the closely monitored energy sector. Investing in ESG-labeled energy stocks can outperform a value-weighted global energy sector index, according to several out-of-sample performance analyses. The PTV strategy stands out over a sample period of more than twelve years. This strategy performs similarly to a fully diversified world market index and consistently outperforms a world energy index. Over the last five years, the simple strategy based on ESG scores performs similarly to the PTV strategy.
•Two factors are considered in the context of behavioral finance.•These factors are Prospect Theory Value (PTV) and Environmental, Social and Governance (ESG).•ESG energy company portfolios are built using quartile strategies based on ESG and PTV.•PTV strategies show excellent out-of-sample performance.•Q1 portfolios from both factors outperform the ESG energy sector and a global energy index.