• The Growth and Performance of Artificial Intelligence in Asset Management (with Clemens Sialm and David Xu)

This paper examines AI adoption in asset management and its investment implications. We document that AI-driven investing is concentrated among hedge funds, particularly those employing macro strategies. AI funds exhibit greater alpha comovement and are launched by investment advisers facing stronger performance incentives. These funds significantly outperformed non-AI hedge funds on a risk-adjusted basis, but their outperformance declined over time and disappeared with the growth of AI-driven investing. Nevertheless, AI funds continued to outperform sibling funds managed by the same advisers. Our findings highlight both the alpha-generating potential and the limitations of AI as a source of investment performance.

• Green Investors and Green Transition Efforts: Talk the Talk or Walk the Walk?  [Slides]

This paper develops a method to separately measure a company's efforts in substantive environmental improvements ("walk") and mere promotion of a green image ("talk") by analyzing online job postings. Walk efforts positively predict future environmental performance and data disclosure, while talk efforts do not. Applying this method reveals that sustainable mutual funds in the EU and US hold higher ownership stakes in companies with higher talk efforts, and three major ESG rating agencies award greener scores to these companies, controlling for walk efforts. Evidence suggests sustainable mutual funds invest in companies with higher talk efforts to attract higher fund flows.

• Quantitative Investing and Stock Market Price Elasticity (with Francesco Franzoni, Laurent Frésard, and Augustin Landier)

We evaluate the impact of quantitative investing on stock market price elasticity by examining portfolio holdings of U.S. equity mutual funds that follow quantitative or other investment strategies. Using the demand estimation approach of  Koijen and Yogo (2019), we find that, at the fund level, stock demand is less elastic for quantitative funds, as one would expect given their fixed investment rules. However, the stock demand of the whole sector of quantitative funds is more elastic to price than for the fundamental sector, suggesting that quantitative funds collectively span a sufficiently wide variety of trading strategies so that their demand reacts sensitively to price moves. This finding is reassuring that the growth of quantitative funds would not make the market more fragile and less able to self-correct.

• Who Trades on Anomalies?

I examine institutional trading on well-known asset pricing anomalies using the transaction-level trading history of institutional investors in the Abel Noser database. I find that there is large heterogeneity among institutional investors and strong persistence within an investor in terms of trading direction on the anomaly long-short portfolios, ranging from completely in the smart direction, i.e., buying long-leg stocks or selling short-leg stocks, to completely in the dumb direction, i.e., selling long-leg stocks or buying short-leg stocks. The numbers of investors in the smart direction and in the dumb direction are approximately balanced. For most anomalies, institutional investors focus on buying and selling only one leg of the anomaly long-short portfolio, but not necessarily the long leg as the literature indicates. Investors specializing in one trading direction exhibit better stock-picking capability in the buy orders in the corresponding direction.

• Do Banks’ Sustainability Commitments Have Real Effects? It Depends on the Firm's Size. (with Qingyuan Yang)

We study the effects of bank lending on firms' green transition in Chinese public firms. The empirical setting exploits the regulations on banks' green credit performance as a positive shock to banks' sustainability commitments. Using a triple difference-in-differences framework, we document that only in the small-firm subsample, the difference in the number of bank loans between green firms and brown firms becomes larger for borrowers of the more committed banks than for borrowers of other banks since the regulated green credit performance in 2016. We also find that green firms borrowing from the more committed banks make more improvements in environmental performance. There are no significant differences in the large-firm subsample. This heterogeneity is consistent with the higher financing frictions of small firms. Higher friction leads small firms to be more sensitive to the sustainability commitments of their relationship banks than large firms.

This is a list of 23 Panopto videos for the first 6 exercise sessions. I am trying to speak clearly in the videos so that you could speed up to the pace you prefer.

(By Maxime Couvert)

SFI research days, June 2020

Sustainable finance:

• List of occupations on substantive green practices (walk) and communication of green firm images (talk).

• List of green keywords.

• BERT classifier for separating green jobs from non-green jobs. The linked webpage is interactable. Input your own content and check out the model prediction!  

• List of green patent IPC codes 

Institutional investors:

• Method of identifying CRSP Mutual Funds in Abel Noser (formerly, ANcerno) institutional trading data

Text analysis:

• Extract text from webpage

• Text preprocessing

Miscellaneous:

• Automate mouse and keyboard on repetitive tasks

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