Model portfolios illustration from Pixabay by Tumisu
7x new research on clean transparency, ESG demand effects, green lending benefits, attractive green investments, rule-based model portfolios, small cap investing and selfish savings (#shows SSRN full paper downloads as of August 22nd, 2024)
Social and ecological research
Cleaning segment transparency: Does Segment Disclosure Constrain Corporate Pollution? by Chenxing Jing, Bin Xu , and Luo Zuo as of May 7th, 2024 (#134): “Segment information matters for the external monitoring of corporate environmental performance because the information about a firm’s operating segment(s) highlights the underlying environmental issues and exposes the firm to increased environmental scrutiny. … we empirically test the effect of the mandatory disclosure of pollutive segments on firm toxic pollution. We find that the newly disclosed information about pollutive segments decreases the amount of toxic pollution released by firm plants, consistent with the idea that more transparent corporate segment disclosure improves the monitoring of corporate environmental performance. … Further analysis reveals that firms reduce pollution by enhancing their pollution prevention practices and green innovation …“ (p. 29). My comment: Segment disclosure is also important to determine revenue and/or capex alignment with the Sustainable Development Goals, see e.g. Impactfonds im Nachhaltigkeitsvergleich
Sustainable investment research (in: Model portfolios)
Demand driven ESG returns? ESG Risk and Returns Implied by Demand-Based Asset Pricing Models by Chi Zhang, Xinyang Li, Andrea Tamoni, Misha van Beek, and Andrew Ang as of Dec. 20th, 2023 (#291): “We investigate the effect of changing investor demand for ESG characteristics on stock returns. We consider the effect of three types of shifts: increases in the preferences for ESG by investors, shifts in assets under management (AUM) from institutions caring less about ESG to those caring more about ESG, and changes in the ESG characteristics of the stocks themselves. … We find increases in preferences for ESG may result in increases in downside risk for the stocks with low ESG scores as these stocks may exhibit decreases in stock returns. … Additionally, our analysis shows that if the trend in increasing ESG preferences continues, there may be higher returns from stocks with higher ESG scores as increasing demand drives up the prices for these types of stocks“ (p. 11). My comment: I expect significant demand shifts towards ESG and SDG investments in the future
Green credit advantage: Climate risk, bank lending and monetary policy by Carlo Altavilla, Miguel Boucinha, Marco Pagano, and Andrea Polo from the European Central Bank as of Nov. 3rd, 2023 (#447): “We find that euro-area banks charge higher interest rates to firms with larger carbon emissions, and lower rates to firms that commit to green transition, even after controlling for firms’ credit risk as measured by their probability of default. … banks … that signed a commitment letter within the Science Based Targets initiative (SBTi) indeed provide cheaper loans to firms that commit to decarbonization and, to a smaller extent, penalize more polluting firms. … While restrictive monetary policy increases the cost of credit and reduces lending to all firms, its contractionary effect is milder for firms with low emissions and those that commit to decarbonization“ (p. 9). My comment: Brown investors claim that they expect higher equity returns than green investors because they accept higher (environmental) risks. But they should also consider higher credit and ESG-improvement costs.
Green investment potential: Fast die Hälfte der Privathaushalte ist offen für grüne Finanzanlagen – Transparenz über Klimawirkung ist entscheidend von Daniel Römer und Johannes Salzgeber von KFW vom 13. August 2024: „Die vorliegende Analyse … zeigt, dass etwa die Hälfte der Haushalte in Deutschland (44 %) offen für grüne Geldanlagen ist und diese zum Teil (14 %) auch schon selbst nutzt. Die Befragungsdaten zeigen weiterhin, dass diese Haushalte auch mehrheitlich bereit sind, für das Klima auf Kapitalrendite zu verzichten. Wichtig ist hierbei jedoch eine glaubhafte Klimawirkung der Anlage“. Mein Kommentar: Die Geldanlagebranche hat diesbezüglich noch viel Aufklärungsbedarf und Nachholpotenzial
Other investment research
Rule model portfolios: The Power of Rules: Model Portfolios and Wealth Management by Yuliya Plyakha Ferenc, Laszlo Hollo, Joseph Wickremasinghe, and Raina Oberoi from MSCI Research as of August 14th, 2024: “… both methods for making tactical-allocation decisions in model portfolios — traditional and rules-based — produced similar performance and AI exposures. The primary difference between the two is that the rules-based approach would be more likely to meet the five challenges of model-portfolio management with a greater degree of transparency and efficiency. The importance of addressing these challenges is growing with the heightened demand for customization by wealth-management clients. According to Morningstar, between June 2022 and June 2023, inflows to model portfolios increased by 48%, 10 and the demand for personalization is spreading across all segments of the wealth market. In response, Cerulli found in a recent survey that 60% of asset managers and model-portfolio providers have placed custom model portfolios as the top initiative for their firms. As managers and advisers endeavor to meet their clients’ growing requests for customized solutions, considering rules-based management approaches for model portfolios may offer opportunities that improve on traditional management approaches” (p. 19). My comment: I offer (most responsible) rule based model portfolio since 2015, see Regelbasierte Modellportfolios sind besonders attraktiv | CAPinside
Small dilletantes: Small-Cap and Large-Cap Stocks and the Herding Phenomenon: Insights from a Leading Social Trading Platform (STP) by Cedric Kanschat and Alexander Zureck as of August 13th, 2024 (#12): “.. the daily portfolios from a leading Social Trading Platform (STP) were scrutinised over the period from 01/01/2021 to 03/06/2023. … A total of 7,672 portfolios and 8,679 distinct stocks were examined … The results show that the herding behaviour of social traders in small-cap and large-cap stocks lead to contrasting results. Small-cap stocks systematically generate negative returns, while herding behaviour in large-cap stocks leads to positive returns. Social traders apparently manage to make better investment decisions when the quantity and quality of information is better. The volatility of large-cap stocks is only half that of small-cap stocks” (abstract). My comment: Professional small cap stock selection should be able to mitigate most of these effects, see e.g. my small cap portfolio performances
Selfish of altruist savings? Why Do Europeans Save? Micro-Evidence from the Household Finance and Consumption Survey by Charles Yuji Horioka and Luigi Ventura as of Aug. 19th, 2024 (#0, paywall): “… we found that the rank ordering of saving motives differs greatly depending on what criterion is used to rank them. For example, we found that the precautionary motive is the most important saving motive of European households when the proportion of households saving for each motive is used as the criterion to rank them but that the retirement motive is the most important saving motive of European households if the quantitative importance of each motive is taken into account. Moreover, the generosity of social safety nets seems to affect the importance of each saving motive … our finding that the intergenerational transfers motive, which is the saving motive that most exemplifies the altruism model, accounts for only about one-quarter of total household wealth in Europe “ (p. 10/11).
Werbehinweis (in: Model portfolios)
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