Searching for ESG Information : Heterogeneous Preference and Information Acquisition

Based on a rational expectation equilibrium (REE) in which traditional and green investors have distinct preferences over monetary and non-monetary risks, we explore how environmental, social, and governance (ESG) investing reshapes investors’ information-searching decisions and affects the financial market quality. ESG information is valuable for traditional investors who only care about monetary risks because it tells them the difference between price and expected monetary risks. There exists strategic complementary in traditional investors’ ESG information searching decisions to the popularity of ESG investing. However, more searching of ESG information leads to a less informative equilibrium price with respect to the non-monetary risks