ESG Rating Fluctuations and Investor Psychological Reactions: Impacts on Investors’ Mental Health
Pengyu ZhangAbstract
Objective
This study aims to investigate the profound impact of investor psychology on stock prices and financial performance against the backdrop of ESG rating fluctuations, with particular focus on revealing the psychological mechanisms between corporate sustainability performance and market reactions, including investors' anxiety disorders and stress responses.
Subjects and Methods
The research employed a mixed-methods approach, analyzing panel data from 1,236 A-share listed companies (2018-2023). Through big data analysis of investor sentiment and experimental economics methods, we examined behavioral patterns under different ESG rating scenarios. The study utilized the Investor Sentiment Index, ESG ratings, corporate financial indicators, and incorporated psychological assessments including the Generalized Anxiety Disorder Scale (GAD-7) and Perceived Stress Scale (PSS).
Results
ESG rating fluctuations significantly influenced investor psychology, with each grade change causing 8.7% stock price fluctuation and triggering 25% increase in anxiety symptoms. Negative ESG adjustments provoked stronger psychological reactions (β = -0.83, p < 0.01) and 30% higher stress levels. Investor sentiment mediated 65.3% of the market reaction to ESG changes. Companies with stable ESG ratings showed 23.6% lower stock volatility and significantly better investor mental health indicators.
Conclusions
Investor psychology plays a pivotal mediating role in the ESG-performance relationship, with significant implications for investors' mental health. Enterprises should stabilize ESG performance to manage investor expectations and reduce anxiety, while regulators should enhance information disclosure to mitigate psychological stress in sustainable investing.
Corresponding Author
Pengyu Zhang, Department of Economics and Management, Jining Normal University, Ulanqab, Inner Mongolia Autonomous Region, 012000, China.