Green Sentiment, Stock Returns, and Corporate Behavior

In this paper, we propose a new method to estimate non-fundamental demand shocks for green financial assets based on the arbitrage activity of exchange-traded funds (ETFs). By estimating the monthly abnormal flows into environment-friendly ETFs, we construct a Green Sentiment Index that captures shifts in investors' appetite for environmental responsibility that are not yet priced in the value of the underlying assets. Our measure of green sentiment differs significantly from the news-based climate indexes proposed by the extant literature, and it has additional explanatory power on both stock returns and corporate decisions. Over the period 2010-2020, shifts in green sentiment anticipate a persistent stock-price out-performance of more environmentally responsible firms, (of approximately 53 basis points over six months for a one-standard-deviation higher green sentiment) as well as an increase in their capital investments and cash holdings, particularly for more equity-dependent ones

Inflation, the corporate greed narrative, and the value of corporate social responsibility

Inflation can significantly undermine companies’ relationships with their customers, employees, and other stakeholders, spawning a crisis of trust. This is particularly true in a period when many citizens accuse corporations of excessively raising prices to maximize profits. Studying the cross-sectional reactions of U.S. stocks to inflation over the period 2018-2022, we find that in the month following a higher inflation rate, equity investors reward firms with stronger social capital, as proxied by their corporate social responsibility (CSR) levels. The effect holds using different measures of inflation, including region-specific ones. The inflation-hedging property of CSR is stronger for firms headquartered in Democratic U.S. states (those most exposed to the “corporate greed” narrative of inflation) and appears to operate through the firm’s cash flows. Analyst forecast revisions provide additional evidence of the value of CSR in inflationary periods. Overall, the findings spotlight inflation as a crisis in stakeholder trust and provide new insights into the importance of social capital for firm value

Climate Sin Stocks: Stock Price Reactions to Global Climate Strikes

The first Global Climate Strike on March 15, 2019 has represented a historical turn in climate activism. We investigate the cross-section of European stock price reactions to this event. Looking at a large sample of European firms, we find that the unanticipated success of this event caused a substantial stock price reaction on high-carbon intensity companies. These findings are likely driven by an update of investors' beliefs about the level of environmental social norms in the economy and the anticipation of future developments of climate regulation.JRC.B.1-Finance and Econom

Revealed Beliefs about Responsible Investing: Evidence from Mutual Fund Managers

What do asset managers believe regarding the financial performance of Environmental, Social, and Governance (ESG) investment strategies? We address this question by exploring the relationship between fund managers’ co-ownership and portfolio ESG performance. Managers with more “skin in the game” exhibit significantly lower ESG performance in funds they manage than their peers. ESG performance is sensitive to changes in managerial ownership. Co-investing managers were less likely to increase their stake in high-ESG stocks after an exogenous shock in ESG-driven fund flows. Moreover, the negative effect of managerial ownership on ESG performance is stronger for managers paid to maximize assets under management, and weaker for managers paid exclusively to maximize financial returns. Overall, the results are contrary to what one would expect if managers really considered ESG strategies an enhanced form of portfolio management

Sustainable Investing and Political Behavior

A major concern regarding sustainable investing is that it may crowd out political support for government interventions targeting negative externalities. We test the validity of this concern in a preregistered experiment shortly before a real referendum on a climate law with a representative sample of the Swiss population (N = 2,051). We find that the opportunity to invest in a climate conscious fund does not erode individuals’ support for climate regulation. Our experimental results are consistent with actual voting and investing behavior across Switzerland. We conclude that the spillover effects of sustainable investing on individual political behavior are limited

Do Institutional Investors Stabilize Equity Markets in Crisis Periods? Evidence from COVID-19

During the COVID-19 crash, U.S. stocks with higher institutional ownership performed worse. This under-performance is unrelated to revisions in earnings expectations, which suggests a disconnect between stock prices and firm fundamentals. Two mechanisms were at play: Institutions faced a sudden increase in redemptions and simultaneously attempted to de-risk their portfolios. Most types of institutional investors re-balanced portfolios toward financially strong firms, whereas hedge funds sold indiscriminately. Data from a discount brokerage (Robinhood) confirm that retail investors provided liquidity. Overall, the results suggest that when a tail risk realizes, institutional investors amplify price crashes

Fingolimod in children with Rett syndrome: the FINGORETT study

Background Rett syndrome (RS) is a severe neurodevelopmental disorder for which there is no approved therapy. This study aimed to assess safety and efficacy of oral fingolimod in children with RS using a pre-post and case–control design. Methods At the University of Basel Children’s Hospital, Basel, Switzerland, children with RS were included if they were older than 6 years and met the established diagnostic criteria of RS, including a positive MeCP2 mutation. Participants were observed 6 months before and after treatment and received 12 months of fingolimod treatment. Serum samples of 50 children without RS served as reference for brain-derived neurotrophic factor (BDNF) measurements. Primary outcome measures were safety and efficacy, the latter measured by change in levels of BDNF in serum/CSF (cerebrospinal fluid) and change in deep gray matter volumes measured by magnetic resonance imaging (MRI). Secondary outcome measure was efficacy measured by change in clinical scores [Vineland Adaptive Behaviour Scale (VABS), Rett Severity Scale (RSSS) and Hand Apraxia Scale (HAS)]. Results Six children with RS (all girls, mean and SD age 11.3 ± 3.1 years) were included. Serum samples of 50 children without RS (25 females, mean and SD age 13.5 ± 3.9 years) served as reference for BDNF measurements. No serious adverse events occurred. Primary and secondary outcome measures were not met. CSF BDNF levels were associated with all clinical scores: RSSS (estimate − 0.04, mult.effect 0.96, CI [0.94; 0.98], p = 0.03), HAS (estimate − 0.09, mult.effect 0.91, CI [0.89; 0.94], p <  0.01) and VABS (communication: estimate 0.03, mult.effect 1.03, CI [1.02; 1.04], p < 0.01/daily living: estimate 0.03, mult.effect 1.03, CI [1.02; 1.04], p < 0.01/social skills: estimate 0.07, mult.effect 1.08, CI [1.05; 1.11], p < 0.01/motoric skills: estimate 0.04, mult.effect 1.04, CI [1.03; 1.06], p = 0.02). Conclusions In children with RS, treatment with fingolimod was safe. The study did not provide supportive evidence for an effect of fingolimod on clinical, laboratory, and imaging measures. CSF BDNF levels were associated with clinical scores, indicating a need to further evaluate its potential as a biomarker for RS. This finding should be further validated in independent patient groups

COVID-19 and the Stock Market

When disaster strikes, the weak suffer mightily, the strong only slightly. That is the lesson from stock market reactions to COVID-19. Strong firms had a robust financial position, advanced environmental and social performance, and were not severely exposed to social distancing and lockdowns. Firms with significant international exposure suffered more, at least at first. The ultimate effects of policy interventions, including those by central banks, have yet to be revealed. The market recovery in the second quarter of 2020 is like a patient recovering from COVID-19: hopeful but still uncertain. Managers and policymakers should project the future with great caution

Feverish Stock Price Reactions to COVID-19

Market reactions to the 2019 novel coronavirus disease (COVID-19) provide new insights into how real shocks and financial policies drive firm value. Initially, internationally oriented firms, especially those more exposed to trade with China, underperformed. As the virus spread to Europe and the United States, corporate debt and cash holdings emerged as important value drivers, relevant even after the Fed intervened in the bond market. The content and tone of conference calls mirror this development over time. Overall, the results illustrate how anticipated real effects from the health crisis, a rare disaster, were amplified through financial channels