Title: Applying ESG-based arbitrage with ETFs

Authors: Gerasimos G. Rompotis

Addresses: Department of Economics, National and Kapodistrian University of Athens, 81A Karaiskaki Street, Glyka Nera, Athens, Greece

Abstract: We assess the expenses, ESG score, return, risk and tracking error of 35 paired UK and US ETFs written on the same benchmarks during the period 2016-2020. The results indicate that, even though the ETF pairs track the same indexes, there are statistically significant differences in return, risk and tracking error of these ETFs. Going further, we built a blended portfolio of 35 UK and US ETFs with the highest ESG ratios and compare its return, risk, expense ratio and tracking error to the individual UK and US ETF portfolios. The comparison reveals that the blended portfolio can outperform the country portfolios shouldering, at the same time, investors with a lower risk. Significant difference also exist in expense ratios and tracking errors between the blended and the country ETF portfolios.

Keywords: ESG; arbitrage; performance; risk; tracking error.

DOI: 10.1504/IJAF.2022.131448

International Journal of Accounting and Finance, 2022 Vol.11 No.2, pp.99 - 114

Received: 29 Sep 2021
Received in revised form: 30 Mar 2022
Accepted: 04 Jul 2022
Published online: 13 Jun 2023 *

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