Heidebild als Illustration für Proven Impact Investing

Proven Impact Investing? (Researchblog #97)

Costly midlifes: The midlife crisis by Osea Giuntella, Sally McManus, Redzo Mujcic, Andrew J. Oswald, Nattavudh Powdthavee, and Ahmed Tohamy as of  September 15th, 2022 (#67): “This paper documents a longitudinal crisis of midlife among the inhabitants of rich nations. Yet middle-aged citizens in our data sets are close to their peak earnings, have typically experienced little or no illness, reside in some of the safest countries in the world, and live in the most prosperous era in human history. … The paper shows that there are approximately quadratic hill-shaped patterns in data on midlife suicide, sleeping problems, alcohol dependence, concentration difficulties, memory problems, intense job strain, disabling headaches, suicidal feelings, and extreme depression” (abstract).

Meta climate impact analysis: A Meta-Analysis of the Total Economic Impact of Climate Change by Richard S.J. Tol as of September 15th, 2022 (#29): “The central estimate of the economic impact of global warming is always negative. The confidence interval about the estimates is much wider. … The uncertainty about the impact is skewed towards negative surprises. Poorer countries are much more vulnerable than richer ones. … studies, which relate economic growth to temperature levels, cannot agree on the sign of the impact whereas studies, which make economic growth a function of temperature change do agree on the sign but differ an order of magnitude in effect size. … The social cost of carbon shows a similar pattern to the total impact estimates, but with more emphasis on the impacts of moderate warming in the near and medium term” (abstract).

ESG and proven impact investing

Good reporting: The Effect of Mandatory Carbon Reporting on Greenwashing by Jody Grewal, Gordon Richardson and Jingjing Wang as of September 16th, 2022 (#225): “We study whether mandatory carbon reporting reduces the selective disclosure of favorable versus unfavorable environmental information. Our setting is a regulation mandating firms to report carbon emissions, or mandatory carbon reporting (MCR). Measuring selective disclosure as the difference between how much a firm discloses and how much of the disclosure is indicative of the firm’s environmental impact, we find that MCR leads to a decline in selective carbon disclosure, consistent with MCR requiring firms to disclose relevant carbon information that they withheld when disclosure was voluntary. We also find that MCR curtails firms’ selective reporting of other environmental information disclosed voluntarily. …. Firms that experience a reduction in selective carbon disclosure also decrease carbon emissions, suggesting that the removal of greenwashing opportunities under mandated reporting impels firms to make real changes to improve environmental performance” (abstract).

Proven impact investing? The Impact of Sustainable Investment Funds – Impact Channels, Status Quo of Literature, and Practical Applications by Marco Wilkens, Martin Rohleder, and Jonas Zink as of September 15th, 2022 (#119): “This article provides an overview of the status quo of research on impact investment. … Empirically, there are at least initial indications that an impact has already been achieved … Although the concrete quantification of funds‘ impact performance poses several challenges and will never be perfect, … it is expected that the mere existence of such information will encourage sustainable investment funds to make more efforts to achieve a sustainable impact” (p. 18). My comment: My approach see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com)

Anti-engagement poison (proven impact investing): The Rise of Anti-Activist Poison Pills by Ofer Eldar, Tanja Kirmse, and Michael D. Wittry as of August 24th, 2022 (#123): “Since their inception in the 1980s, poison pills have been viewed of as the preeminent anti-takeover device. In the last decade, however, they have been increasingly used to discourage activist investors. We compile the most comprehensive database of poison pills to date, … we show that the threat of an intervention significantly increases the probability that a firm will adopt a poison pill in the following quarter. Furthermore, these pills are effective in repelling activists” (p. 26/27).

Traditional and general investment topics (proven impact investing)

Less indexing power: Mavericks, Universal, and Common Owners – The Largest Shareholders of U.S. Public Firms by Amir Amel-Zadeh, Fiona Kasperk, and Martin Schmalz as of August 21st, 2022 (#539): “We construct a novel data set to show that, between 2003-2020, up to one-fifth of America’s largest firms had a non-financial blockholder or insider as their largest shareholder. Blockholders and insiders tend to be less diversified than institutional investors. Measures of “universal” and “common” ownership of firms (Sö: widely diversified institutional asset managers) are therefore lower than previously believed based on analyses of institutional investors’ holdings alone, and the heterogeneity in ownership structures across firms is greater. Consolidation in the asset management industry increases universal ownership and common ownership of industry rivals. .. results claiming indexing alone explains the rise of universal ownership cannot be confirmed with the new, more comprehensive data” (abstract).

Client-advisor fits: Same same, not different: Client-Advisor Matching in the Finance Industry by Julia Rose as of September 15th, 2022 (#7): “In an experiment with 567 subjects from the general population and financial professionals, we introduce a novel matching procedure to assign advisors to clients. The matching is based on measures for risk-return attitudes and a risk bearing capacity. The results show that similarity between clients and advisors in the risk measures is the desired mechanism by clients, increases the delegation probability of investment decisions, and overall client satisfaction. Advisors are both willing and able to incorporate clients’ risk attitudes in investment decisions on the clients’ behalf and do not misreport their risk attitudes to be paired with more clients” (abstract).

Risk or loss aversion? Behavioral Risk Profiling: Measuring Loss Aversion of Individual Investors by Dennie van Dolder and Jurgen Vandenbroucke as of September 7th,2022 (#90): “In line with recent findings, we also find that loss aversion is strongly related to education, with higher educated individuals being more loss averse. … we show that loss aversion is largely independent of the risk-return preferences commonly used for investor classification, and that the correlations between these two preferences and clients’ background characteristics are markedly different. Whereas loss aversion is only related to education, risk aversion is strongly related to a client’s gender, age, and financial situation: women, more senior, and less affluent participants are more averse to risk” (p. 24, 25).

Stupid home owners? Correlation of Financial Literacy and Demographics on Home Ownership in Germany by Thomas Hammer, Philippe Krahnhof and Alexander Zureck as of September 19th, 2022 (#7)…: “Those aged up to 29 achieved the best results in answering all the questions in the „Big Three“ (Sö: financial literacy) questionnaire . This suggests that in the wake of the Corona pandemic, many young people have turned more strongly to financial topics and that the so-called „Generation Aktie („Generation Shares“) has become much more involved with old-age provision by means of shares and investment funds and has built up knowledge in this area. The proven negative correlation between home ownership and financial literacy suggests that home owners regard their „own home“ as an essential part of their retirement provision and are therefore less concerned with financial topics such as compound interest, inflation and diversification in financial investments” (p. 7).

REIT criticism: The Role of Public REITs in Financialization and Industry Restructuring by Rosemary Batt, Eileen Appelbaum, and Tamar Katz as of September 7th, 2022 (#8): “Real Estate Investment Trusts (REITs) are important but little studied financial actors that control over $3.5 trillion in gross assets and over 500,000 properties in the U.S. … they are actually financial actors that aggressively buy up property assets and manage them to extract wealth at taxpayers’ expense … case study evidence from markets where REITs have a major presence – nursing homes, hospitals, and hotels. The tax treatment of REITs has facilitated a growing and worrying influence on health care markets in particular at taxpayer expense” (abstract). My comment: Already in 2016, I started a portfolio of REITs with good ESG ratings which hopefully helps, see Erstes konsequent verantwortungsvolles ESG-Portfolio aus Immobilienaktien – Responsible Investment Research Blog (prof-soehnholz.com)

Fintech and alternative investments

Fractional opportunities: The Impact of Fractional Trading on Risk Aversion for Non-professional Investors by Janhavi Shankar Tripathi and Erick W. Rengifo as of September 19th, 2022 (#20): “Using the expected utility framework, we show that with the recent easiness to trade in stock markets and with the option to buy or sell a fraction of a share of a stock or ETFs (exchange-traded funds), the risk appetite of non-professional investors might have gone up, increasing market participation and demand for stocks. Furthermore, we show that this change in the non-professional investor’s risk aversion behavior varies by household income levels. Our results suggest that easy access to trade stocks and fractional trading allows households with lower discretionary income a new tool to diversify their portfolio and participate in the stock markets by investing in different stocks and ETFs while at the same time having a significant impact on the stocks‘ price levels and price dynamics observed in the markets” (abstract). My comment: Good for direct ESG indexing, see Custom ESG Indexing Can Challenge Popularity Of ETFs (asiafinancial.com)

Crypto-bond connection: How the Cryptocurrency Market is Connected to the Financial Market by Sang Rae Kim as of June 30th, 2022 (#1428): “The cryptocurrency market is connected to the traditional financial market through reservebacked stablecoins. A one standard deviation ($320 million) increase in the issuance of major stablecoins (Tether and USD Coin) on a given day results in a 10.7% increase in the commercial paper issuance quantity, a 20 basis point decrease in the commercial paper yield, and a 15 basis point decrease in the Treasury yield the following day. This shows that the exponential growth of stablecoins created an excess demand for short-term money-like safe assets such as commercial paper and Treasury. I also explore the fiat cryptocurrency market’s effect on the commercial paper market. A one standard deviation increase in the market capitalization growth of major fiat cryptocurrencies (Bitcoin, Binance Coin, and Ethereum) on a given day results in an 11.9% decrease in the commercial paper issuance quantity, a 20 basis point increase in the commercial paper yield, and a 18 basis point increase in the Treasury yield the following day. This result suggests that investors exchange stablecoins for fiat cryptocurrency when the fiat cryptocurrency market is doing well, lowering the demand for stablecoins and thus commercial paper” (abstract).