How Anti-ESG Pressure Affects Investment: Evidence from Retirement Savings (Single-authored)
Media coverage: UCLA Anderson Review, Morningstar, Inc. Magazine
Awards: UCLA Xavier Drèze Prize for Best Ph.D. Student Research Paper, FMA Semifinalist in Asset Pricing & Investments
Presentations: SFS Cavalcade, NBER Pension Finance Conference, New York Fed and NYU Summer Climate Finance Conference Poster Session, UChicago Booth Stigler Center-CEPR Political Economy of Finance Conference 2024: Corporate Democracy, 16th Annual Alliance for Research on Corporate Sustainability (ARCS) Research Conference, Financial Market Solutions for Funding Green Transition and Climate Resilience—UCSC’s Center for Analytical Finance (CAFIN), the Center for Coastal Climate Resilience (CCCR) and UC Investments (invited), Wellington Finance Summit, SIF, Adam Smith Sustainability Conference, NFA, FMA, Pacific-Northwest Conference, CEAR-RSI Household Finance Conference, SFA, AFA AFFECT
This paper studies how the political environment impacts the availability of ESG options to individuals. I identify a judicial channel: because fiduciary duty is adjudicated by politically-oriented judges, litigation risk discourages some retirement plans from offering ESG. ESG availability is significantly lower in conservative than in liberal judicial circuits, beyond what demographics, firm characteristics and local politics explain. Reductions in judicial discretion close this gap substantially and increase ESG investment especially in conservative circuits. The effects are mostly driven by green firms, non-mega firms, and firms in liberal counties within conservative circuits. ESG inclusion also increases total retirement contributions.
The (Fiduciary?) Case for ESG: A Life-cycle Portfolio Choice Approach (with Michael Gropper and Paul Yoo)
Presentations: UOregon Finance Brownbag
This paper quantifies the welfare gains from including ESG assets in defined-contribution plans using a lifecycle portfolio-choice model with strictly risk-and-return factors. We find substantial heterogeneity across industries in the benefits of including an ESG asset. However, these model-implied welfare gains fail to explain cross-sectional patterns in the availability of ESG funds across retirement plans. Instead, we provide suggestive evidence that political and judicial environments, ESG preferences, and financial intermediaries have significant explanatory power. Our findings suggest that canonical risk-return optimization plays a marginal role in the menu-setting decisions governing the inclusion of ESG options in retirement plans.
Strategic Blindness: Optimal Inattention and Momentum Profitability (with Denis Mokanov and Gabriel Cuevas Rodriguez)
Presentations: Young Scholars Nordic Finance Workshop, FMA
We develop a model in which agents optimally choose their information acquisition rate. We show that our model provides an explanation for a number of empirical regularities documented in the literature: the unconditional profitability of momentum, the occurrence of momentum crashes, the enhanced profitability of volatility-managed momentum, and the attenuation of momentum. Next, we explore the implications of our model regarding the relative profitability of short-run and long-run momentum strategies, and show that the predictions of our model are supported by the data. Finally, we examine the implications of the model for sell-side analysts' earnings forecasts and find that earnings forecasts display conditional patterns consistent with the predictions of our model.
Work in Progress
Political Beliefs and Auto-enrollment Nudges (with Shlomo Benartzi)
Auto-enrollment, a paternalistic approach to bolstering household retirement savings, has sparked considerable debate, particularly among individuals with libertarian perspectives. While encouraging savings, it could potentially elevate a firm’s financial obligations, compromise profits, and suppress employee wages. In this project, we study how political belief influences the auto-enrollment nudge effects by comparing how households with different party affiliations respond to auto-enrollment in the aspect of saving and portfolio selection. Furthermore, we explore the interaction between household political affiliations and those of managerial staff, examining how these dynamics influence both the implementation and reception of auto-enrollment policies within firms. This project shows how government intervention interacts with investors’ preferences and shapes the ultimate equilibrium effect.