HWR Berlin Graduate Published by Springer

Vajirapanie Bandaranayake, graduate of the HWR Berlin MSc. FACT program, has achieved a significant academic milestone with the publication of her Master thesis in Springer's "Best Masters" series. Her work, titled "The Differential Impact of Investor Behavioural Biases on US Sustainable and Non-Sustainable Firms," bridges behavioral finance and sustainable investing—two fields that have rarely been studied together in depth.

Exploring the Behavioral Side of ESG Investing

Environmental, Social, and Governance (ESG) factors have become essential to financial decision-making, reflecting both long-term corporate performance and societal values. Meanwhile, behavioral finance challenges traditional assumptions about rational investors, revealing how biases like overconfidence and limited attention influence asset prices. Bandaranayake's thesis addresses a crucial gap: how do cognitive biases shape the valuation and performance of firms with different sustainability profiles?

Key Findings on Investor Behavior

Using the behavioral three-factor model by Daniel, Hirshleifer, and Sun (2020), Bandaranayake examines how investor biases affect U.S. firms with high versus low ESG scores. Her results show that behavioral factors influence these two groups differently: high-ESG firms experience more efficient price corrections, while low-ESG firms suffer from persistent mispricing. These findings extend existing research on market anomalies and offer practical insights for asset managers, ESG fund providers, and policymakers.

Market Conditions Matter

The thesis reveals that behavioral biases intensify during bull markets and diminish in bear markets. Notably, high-ESG firms provide better downside protection during economic downturns, suggesting that ESG investing contributes not only to long-term performance but also to resilience under stress.

Academic Recognition and Impact

The thesis stands out for its originality in combining behavioral asset pricing with sustainability metrics through rigorous methodology and clear presentation. It offers valuable insights for students, researchers, and practitioners interested in behavioral finance, ESG investing, or asset pricing anomalies—and promises to stimulate further academic research in both domains.

Ms Bandaranayake graduated from the FACT-Master programme in 2025. The thesis was supervised by Prof. Dr. Natalie Packham.

The book is available here: Link Springerverlag