George O. Aragon
Professor of Finance
Arizona State University
Professor of Finance
Arizona State University
Welcome to my website, where you can view my CV and some recent papers.
My CV
Machine-Learning about ESG Preferences: Evidence from Fund Flows
Abstract:
We construct Environmental, Social, and Governance (ESG) scores for U.S. active equity mutual funds based on over 500 underlying metrics covering a wide range of ESG issues and rating agencies. We use a revealed preference approach, combined with machine learning methods, to identify key issues driving fund flows, including waste and pollution (E), product responsibility (S), and business ethics (G). We also generate ESG-driven flows as proxies for a fund's ESG performance. ESG-outperforming funds subsequently attract greater flows but yield lower benchmark-adjusted returns. Investors pay $17 million per year more for a top ESG fund.
Volatility Timing Using ETF Options: Evidence from Hedge Funds
Abstract:
We find that hedge funds’ positions in exchange-traded fund (ETF) options contain volatility information about underlying ETF returns. Greater hedge fund option demand predicts higher variance of ETF returns over the following quarter and on days of macroeconomic news. The predictive power holds for options on equity and non-equity (e.g., fixed income, currency) ETFs. A tracking portfolio of straddles based on funds’ straddle positions earns quarterly abnormal returns of 7.95%. Net of fees, funds using ETF straddles deliver lower risk and higher benchmark-adjusted returns than nonusers. We conclude that ETF options are an important venue for market volatility timing strategies.
Investor Attention and Mutual Fund Performance
Abstract:
We extend Berk and Green’s (2004) model by integrating Miller’s (1977) insight on the effects of heterogeneous beliefs and restricted short sales, proposing that higher investor attention not only attracts optimistic inflows but also inflates assets under management and diminishes future fund performance. Using Abnormal View Share (AVS)—a novel measure of investor attention based on SEC EDGAR view data—we find that increased AVS predicts greater fund inflows in the following month but lower returns thereafter. This work underscores how limited attention and optimism impact fund valuations, advancing the intersection of investor attention and market dynamics theories.
Are Hedge Funds Exploiting Climate Concerns?
Abstract:
We measure a hedge fund’s exposure to climate concerns using its return covariation with the returns on a green-minus-brown stock portfolio (GMB beta). Hedge funds in the top GMB beta decile outperform those in the bottom decile by 8% per year on a risk-adjusted basis. We provide evidence that the managers of these funds are more skilled in exploiting the market’s climate concerns. Hedge funds’ aggregate portfolio of green stocks outperforms the market portfolio of green stocks, and their demand for put options on green stocks reliably anticipates lower stock returns. We also find that hedge funds tend to hold stocks with lower future carbon emissions, and investors reward high-GMB beta funds with greater flows.
Hedge Fund Liquidity Management: Insights for Fund Performance and Financial Stability
Abstract:
Using Form PF filings over 2013–2022, we find that hedge funds maintain higher levels of cash holdings and available borrowing (“liquidity buffers”) when they hold more illiquid assets, have shorter-term commitments from investors and creditors, and when market volatility is greater. Funds with low abnormal buffers – buffers below the level predicted by fund attributes – outperform their benchmarks and exhibit stock selection skill around earnings announcements. However, such funds reduced their existing equity positions more intensively during the 2020 crisis period, which created price pressure in the securities held by low abnormal buffer funds. These results highlight the trade-offs of larger liquidity buffers which can improve funds’ resilience during crises but hinder the trading activities of informed traders during normal times.
Exploration or Exploitation? Hedge Funds in Venture Capital
Abstract:
We study hedge funds in the venture capital market. Compared to traditional venture capitalists, hedge funds invest more in later stage companies and companies that subsequently exit via IPO conditional on stage of entry. Consistent with stock selection skill porting from public to private markets, the prior industry focus and alpha of hedge funds’ public equity portfolios predict which industries hedge funds target in the venture market, and prior public alpha predicts higher IPO rates for target companies. Venture experience is also valuable for hedge funds’ public market investments and predicts an increase in public alpha of 1.1-1.7% per quarter.