Abstract: We offer new evidence on the influence of environmental criteria on international stock returns. We highlight how “representation bias,” defined by the uneven coverage of environmental ratings across the global equity universe, can distort inferences. We affirm good coverage in MSCI ESG datasets for U.S. stocks but uncover significant under-representation for non-U.S. markets. Applying a Bayesian shrinkage methodology to correct under-representation bias, we find that developed ex-U.S. markets generate green-minus-brown returns of 38 basis points per month (2012–2021), comparable to 41 bps in the U.S. Industry- and country-level analyses show that low-coverage sectors and markets drive the revised inferences. 

Abstract: I investigate whether biodiversity risks are priced in global stock markets by studying 21,248 publicly listed stocks across 117 countries from April 2016 to June 2023. I first build long-short portfolios of biodiversity-favorable, or “nature-positive” and unfavorable “nature-negative” stocks and uncover a positive “biodiversity alpha” in the US. However, it exists only before the Kunming Declaration in October 2021, and is reversed thereafter by turning negative. No significant “biodiversity alpha” exists outside the US. Next, I examine firm-level biodiversity risk exposures and show that they are positively associated with stock returns worldwide, especially after the Kunming Declaration. This “biodiversity beta” cannot be explained away by carbon emissions or other climate-related issues and environmental issues. Finally, this study shows that firms involved in biodiversity incidents experience higher monthly stock returns in the month of incident(s), particularly after the Kunming Declaration and notably in the US.

Abstract: Trading pauses on individual stocks under the Limit Up-Limit Down (LULD) Plan are key volatility circuit breakers in the US market, designed to prevent future disastrous market events similar to the 2010 Flash Crash. However, unnecessary pauses could harm market quality. Since July 2016, the 10th Amendment to the LULD Plan (A10) has dramatically reduced superfluous trading pauses due to deceptive opening prices. Henceforth, the pre-pause liquidity improves, and there is less room for the post-pause liquidity to increase compared to the pre-pause level. Short-term volatility spikes around trading pauses after A10, and the post-pause volatility increases. Furthermore, it is crucial to understand the role that high-frequency traders play around trading pauses. Post A10, high-frequency quoting peaks closely around trading pauses, especially after trading resumptions. Suggestive evidence indicates that high-frequency quoting is related to improved liquidity around trading pauses, notably post A10 and before trading pauses, but not necessarily linked to increased short-term volatility.