This paper derives the implications of a time gap between the publication of the disaggregated ESG information and the final ESG scores. We use early ESG raw data to reconstruct the scores of MSCI and build a portfolio long in the stocks which ESG score will be upgraded and short in the stocks which ESG score will be downgraded We show that because ESG information is material for financial performance, asset managers can trade on this disaggregated ESG information, before it is known to every player on the market and gain from it. Consistent with the idea that ESG scores incorporates fundamentals which are predictive of performance, we find that timing the announcement of ESG scores yields a significant 0.22 % monthly alpha. Additionally, we identify a subsample corresponding to 13.8 % of the active equity funds which use this strategy and confirm that these funds have a tendency to trade stocks prior to changes in ESG scores.

In this paper, we examine barriers of entry to conduct trading. Our survey-based evidence shows that industrial firms see large profitable trading opportunities in the product markets as well as in their own shares. Yet, according to the same survey, those opportunities are rarely exploited. Similarly non-bank financial institutions, apart from the hedge funds, see trading opportunities that they choose not to utilize. What prevents most non-financial firms and non-bank financial firms from entering the lucrative markets of trading, where hedge funds and merchant traders operate. We examine this topic both from an agency theoretical perspective as well as based on the evidence from an executive survey.