The rising sustainability awareness among regulators, consumers and investors results in major sustainability risks of firms. We construct three ESG risk factors (Environmental, Social and ...Governance) to quantify the ESG risk exposures of firms. Taking these factors into account significantly enhances the explanatory power of standard asset pricing models. We find that portfolios with pronounced ESG risk exposures exhibit substantially higher risks, but investors can compose portfolios with lower ESG risks while keeping risk-adjusted performance virtually unchanged. Moreover, investors can measure the ESG risk exposures of all firms in their portfolios using only stock returns, so that even stocks without qualitative ESG information can be easily considered in the management of ESG risks. Indeed, strategically managing ESG risks may result in potential benefits for investors.
Dividend payments are firm events on a recurring and predictable basis. High returns in the period between announcement-date and ex-dividend date are the main driver for the so-called dividend month ...premium, which are positive abnormal returns in months in which corporations are predicted to issue dividend payments. In our empirical analysis of the German stock market, we find a robust dividend month premium, which is particularly high for stocks with positive dividend surprise. Knowing the dates of dividend announcements and payments enable portfolio managers to exploit the dividend month premium. Also taking into account tracking error and transaction costs, we show that simple portfolio-enhancing strategies lead to highly significant abnormal returns.
A convenient way to apply Fama–French factor models in empirical research is to use factor returns downloaded from databases like Kenneth French’s data library. These factors are usually provided in ...US dollars—for both US and non-US stock markets. But when evaluating non-US data samples from a non-US-dollar investor’s perspective (e.g., European funds from a EUR perspective), the authors maintain that the downloaded factors need to be converted into the respective non-US-dollar currency. They show how to convert the currencies of downloaded factors and illustrate the statistical and practical relevance of the currency conversion based on passive index returns of the MSCI Europe IMI and the returns of actively managed European equity funds from a EUR perspective. Their findings show that neglecting currency conversion results in skewed estimated alphas and factor loadings. The currency conversion of downloaded factors is thus relevant in drawing reliable conclusions when applying time-series or cross-sectional factor models from a non-US dollar perspective. TOPICS: Currency, factor-based models, performance measurement Key Findings ▪ Factor returns downloaded from databases like Kenneth French’s data library are often applied in common factor models. Depending on the investor’s perspective, these factors may require currency conversion to generate reliable alpha and beta estimates. ▪ The adequate currency conversion formulas are straightforward and can be applied to long and long–short factors. ▪ Currency conversion of factors is not a technical exercise. Empirical analysis of a broad sample of equity funds shows that ignoring currency conversion can produce misleading conclusions on performance and investment styles.
Alpha momentum and price momentum Hühn, Hannah Lea; Scholz, Hendrik
International journal of financial studies,
06/2018, Letnik:
6, Številka:
2
Journal Article
Recenzirano
Odprti dostop
We analyze a novel alpha momentum strategy that invests in stocks based on three-factor alphas which we estimate using daily returns. The empirical analysis for the U.S. and for Europe shows that (i) ...past alpha has power in predicting the cross-section of stock returns; (ii) alpha momentum exhibits less dynamic factor exposures than price momentum and (iii) alpha momentum dominates price momentum only in the U.S. Connecting both strategies to behavioral explanations, alpha momentum is more related to an underreaction to firm-specific news while price momentum is primarily driven by price overshooting due to momentum trading.
Air quality measurements usually consist of ground-based instrumentation at fixed locations. However, vertical profiles of pollutants are of interest for understanding processes, distribution, ...dilution and concentration. Therefore, a multicopter system has been developed to investigate the vertical distribution of the concentration of aerosol particles, black carbon, ozone, nitrogen oxides (NOx) and carbon monoxide and the meteorological parameters of temperature and humidity. This article presents the requirements by different users, the setup of the quadrocopter system, the instrumentation and the results of first applications. The vertical distribution of particulate matter next to a highway was strongly related to atmospheric stratification, with different concentrations below and above the temperature inversion present in the morning. After the qualification phase described in this article, two identically equipped multicopters will be used upwind and downwind of line or diffuse sources such as highways or urban areas to quantify the influence of their emissions on the local air quality.
This paper introduces a return-based approach to studying a possible home bias of European equity funds by estimating their exposures to their domestic markets. We first confirm the robustness of our ...approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in 15 European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than a quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.
ESG and corporate credit spreads Barth, Florian; Hübel, Benjamin; Scholz, Hendrik
The journal of risk finance,
03/2022, Letnik:
23, Številka:
2
Journal Article
Recenzirano
PurposeThe authors investigate the implications of environmental, social and governance (ESG) practices of firms for the pricing of their credit default swaps (CDS). In doing so, the authors compare ...European and US firms and consider nonlinear and indirect effects. This complements the previous literature focusing on linear and direct effects using bond yields and credit ratings of US firms.Design/methodology/approachFor this purpose, the authors apply fixed effects regressions on a comprehensive panel data set of US and European firms. Further, nonlinear and indirect effects are investigated utilizing quantile regressions and a path analysis.FindingsThe evidence indicates that higher ESG ratings mitigate credit risks of US and European firms from 2007 to 2019. The risk mitigation effect is U-shaped across ESG quantiles, which is consistent with opposing effects of growing stakeholder influence capacity and diminishing marginal returns on ESG investments. The authors further reveal a mediating indirect volatility channel that substantially amplifies the direct effect of ESG on credit risk. A one-standard-deviation improvement in ESG ratings is estimated to reduce CDS spreads of low, medium and high ESG firms by approximately 4%, 8% and 3%, respectively.Originality/valueThis is the first study to examine whether credit markets reflect regional differences between Europe and the US with regard to the ESG-CDS-relationship. In addition, this paper contributes to the existing literature by investigating differences in the response of CDS spreads across ESG quantiles and to study potential indirect channels connecting ESG and CDS spreads using structural credit risk variables.
This paper explores withholding-tax non-compliance in the context of dividend taxation. It focuses on a specific type of stock-market transactions around ex-dividend dates, so-called “cum-ex” trades, ...which caused considerable revenue losses due to illegitimate tax refunds in Germany and other countries. We use a stylized model of the stock-market equilibrium to analyze the incentives of traders on the German stock market and find that cum-ex trades are only profitable for both buyer and seller in the presence of collusive tax fraud. Our empirical analysis of market data for publicly traded German stocks from 2009 to 2015 confirms that transaction numbers of stocks suitable for cum-ex trades show the expected increase shortly before ex-dividend dates in the period before the tax refunding was reformed. In line with the collusion hypothesis, effects on stock-market prices are not found.
► Most comprehensive empirical study of hybrid mutual funds. ► New approach to measure fund performance against ex-ante investable benchmarks. ► We distinguish between style-shifting and in-quarter ...abnormal performance. ► Analysis of short-term persistence in fund performance. ► In-quarter abnormal performance of hybrid funds persists; style-shifting abilities do not.
Our study analyzes the performance of hybrid mutual funds. Based on two extended Carhart models we determine total fund performance by comparing fund returns to investable fund-specific style benchmarks. Using daily returns and a quarterly measurement interval, we present an innovative return-based approach to decompose total performance into in-quarter abnormal performance and style-shifting performance. In addition, we split total style-shifting performance into active and passive components. In this context, we confirm possible benefits of these performance measures by analyzing several simulated investment strategies. Our empirical study covers 520 hybrid mutual funds from 10/1998 to 12/2009 and shows that hybrid mutual funds (i) do not outperform their benchmarks on average, (ii) partially show positive in-quarter abnormal performance and style-shifting abilities, and (iii) exhibit short-term persistence in in-quarter abnormal performance but not in style-shifting abilities.
This study examines spillover effects following Volkswagen's admission of emissions cheating. We first estimate initial operational losses of 8.45% of Volkswagen's equity market capitalization on the ...date before the announcement, reputational losses up to five times these losses, and significant negative shocks to its stocks and bonds. Analyzing spillover effects from this shock beyond the usually only measured losses in equity value, we find significant negative net spillover effects to European competitors and suppliers in both stock and bond markets. Studying the economic effects in more detail, we show that Volkswagen's total losses of 27.4 billion euros in terms of changes in equity market values over the first five event days are almost entirely composed of abnormal losses. Furthermore, competitors (suppliers) overall suffered 18.3 (12.6) billion euros of abnormal losses during this time, with 60% (69%) of the firms exhibiting negative changes, especially European competitors and suppliers connected to Volkswagen. These figures are further increased by negative bond market value changes. Overall, our results strongly emphasize that neglecting debt holders losses can lead to an underestimation of such events.
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