Working papers
Active fund management when ESG matters (with Doron Avramov and Si Cheng)
Active fund management when ESG matters (with Doron Avramov and Si Cheng)
https://ssrn.com/abstract=4182602
Abstract: This paper develops and tests an equilibrium model for analyzing active fund management with ESG considerations. Sustainable investing incentivizes mutual fund managers to intensify information acquisition, expanding the scope of the active fund industry. Sustainability-guided information and trading decisions result in increasing portfolio deviation from benchmarks at the fund level, while they contribute to enhancing price informativeness and diminishing discount rates at the stock level. Collectively, the negative ESG-expected return relation for green assets amplifies, while it weakens for brown assets, as supported by evidence from the implied cost of equity capital.