Mitigating Contagion Risk by ESG Investing

We study whether ESG investing may mitigate the risk of contagion among equity mutual funds. More precisely, we measure the impact of fire-sale spillover, propagating throughout the financial system, on funds ranked on ESG aspects. We compare the relative loss of capitalization experienced by high- and low-ranked funds. Contagion, which is indirect since funds are not exposed to counterparty risk, is modeled using a network structure. In cases of deleveraging from funds, fire-sale spillover propagates throughout the network because of common asset holdings among funds. We find that funds’ vulnerability to contagion decreases when the level of ESG compliance increases. Moreover, the average relative loss is lower for the high-ranked funds than for the low-ranked ones. The small-size funds mainly drive the result. Our findings indicate that contagion is less effective for high-ranked funds. From a macroeconomic perspective, ESG investing represents a new opportunity for diversification that makes the system more resilient to contagion

Till mortgage do us part: Mortgage switching costs and household's bank switching

We investigate the role of mortgage switching costs in shaping the households' decision to change their main bank. To this end, we use a unique panel dataset that enables us to infer household's bank switching, in conjunction with a legal reform that exogenously slashed down the mortgage switching costs. The empirical evidence, which survives to a variety of robustness checks, supports the hypothesis that the explicit switching costs in the retail banking market are a weighty factor in shaping households' bank switching, despite any potential "informational lock-in". Dissecting the results, we show that the effects of the reform were not uniform across households. The more educated households, those with a longer or broader relationship with their previous bank and those residing in ex-ante less competitive banking markets were at the forefront of the wave of bank switching. (C) 2020 Elsevier B.V. All rights reserved

ESG investing: A chance to reduce systemic risk

We consider a network of equity mutual funds characterized by different levels of compliance with Environmental, Social, and Governance (ESG) aspects. We measure the impact of portfolio liquidation in a stress scenario on funds with different ESG ratings. Fire-sales spillover from portfolio liquidation propagates from one fund to another through indirect contagion mediated by common asset holdings. The analysis is conducted quarterly from March 2016 through June 2018 using daily data from different sources at the fund and firm levels. Our estimation strategy relies on a network analysis where funds are not taken as stand-alone entities but are interconnected components of a unified system. We find evidence that the relative market value loss of the High ESG ranked funds is lower than the loss experienced by the Low ESG ranked counterparts in the time span with lower volatility. In the higher-volatility period there is not always a clear dominance of one class over another. Results are robust when controlling for size and for feedback effects, and for different model specifications. Our analysis offers new insights to both asset managers and policymakers to exploit the aggregate effect of portfolio diversification related to the system as a whole

Legal origins and corporate social responsibility

The legal origin literature documents that civil and common law traditions have different impacts on economic outcomes. We contribute to this literature by formulating and testing hypotheses on the effect of legal origins on corporate social responsibility, overall and in different specific dimensions. We find that, net of industry-specific effects, companies in common law countries score higher in corporate governance and community involvement, while those in countries belonging to the French legal tradition of civil law do better in human resources. We also observe no significant differences in terms of environmental protection among companies in civil and common law countries, which we attribute to a progressive convergence towards common industry sustainability standards

Eventi e News nei Mercati Finanziari

Il mercato finanziario domestico ed internazionale si è sempre più allontanato, nell’ultimo ventennio, dalle ipotesi di efficienza perfetta ed assenza di attriti nella formazione dei prezzi, postulati dalla teoria ed in qualche caso osservabili – almeno temporaneamente – in alcuni segmenti dei mercati finanziari. In questo clima si sono sempre maggiormente affermati gli schemi interpretativi della finanza comportamentale, di cui costituiscono un importante strumento empirico gli Event Studies (ES), estesamente descritti in questo libro

The cooperative bank difference before and after the global financial crisis

We compare characteristics of the banks’ specialization (cooperative versus non-cooperative) at the world level in a time spell including the global financial crisis. Cooperative banks display higher net loans/total assets ratios, lower shares of derivatives over total assets and lower earning volatility than commercial banks. With a diff-in-diff approach we test whether the global financial crisis produced convergence/divergence in these indicators. We finally document that, in a conditional convergence specification, the net loans/total assets ratio is positively and significantly correlated with value added growth in some manufacturing sectors but not in others

The determinants of household's bank switching

tWe investigate households’ bank switching exploiting a unique representative dataset from Bank of ItalySurvey on Household Income and Wealth that follows the households and their bank(s) over time. First,we document that bank switching is quite prevalent in our sample, with almost a quarter of householdschanging their main bank in a biannual horizon. Next, we relate the decision to switch to the featuresand dynamics of household bank relationship, and to the characteristics of both households and banks.In line with the switching cost theory, we find that using more than a single bank, as well as the intensity(number of services used), and the scope (bank services used) of the relationship with the main bank playa role in shaping the households’ decision to switch. Moreover, bank switching is strongly and positivelycorrelated with both taking out and having paid off a mortgage

A new measure of the resilience for networks of funds with applications to socially responsible investments

This paper provides a novel resilience measure of a family of networks in terms of stability of its community structure. To this aim, we assign to each node a probability distribution and introduce an exogenous shock as a lump sum perturbing its left tail. Then, we measure the reactions of the considered networks to the occurrence of such exogenous shocks. Starting from the intuitive interpretation of the methodological proposal in the financial context, we employ it to compare portfolios of funds with different ranks in terms of the Environmental, Social and Governance score. In particular, we consider financial networks whose nodes represent funds, and edges are weighted on the basis of the capitalization due to the common components of the connected nodes. Interestingly, we find that the considered network of High ranked funds is more resilient than the corresponding network of Low ranked funds when funds are small-sized. The opposite behaviour is observed for the big-sized funds