ESG Distance and Excess Comovement of Stock Returns: Evidence from China

This study examines how ESG divergence among firms influences stock price comovement in China's A-share market. We document a significant negative relationship between ESG divergence and stock comovement, with the effect primarily driven by divergence in the environmental (E) dimension. In contrast, differences in social (S) and governance (G) ratings have no discernible impact. Mechanism analysis demonstrates that ESG performance differences attract differential attention from market participants, thereby affecting excess comovement. Our findings refine the understanding of ESG-driven market dynamics and provide empirical evidence for optimizing ESG disclosure frameworks and investor decision-making systems in emerging markets.