Take it with a pinch of salt—ESG rating of stocks and stock indices

This paper investigates the environmental, social, and governance (ESG) ratings of 20 leading stock exchange indices by analyzing and aggregating ratings of underlying stocks. ESG ratings are increasingly important inputs to sustainable investments in the European Union and United States with the phasing-in disclosure regulations. We find that ratings from two different rating providers (Sustainalytics and Refinitiv) for the same listed stocks are only weakly correlated, even if the scaling differences of the ratings are adjusted. Monte Carlo simulations are conducted to estimate how the choice of major ESG rating inputs (i) aggregation formula, (ii) weighting scheme and (iii) data provider influence the uncertainty of ratings and thus indirectly the sustainable investment process. The simulations reveal that the uncertainty is primarily related to choice of the ESG rating provider. We found that the popular best-in-class portfolio selection could be built on ESG scores. In lower segments of the ESG asset universe, investment selection becomes more challenging due to the increasing uncertainty of ratings. Finally, the paper shows that exchanges in the European Union provide relatively good ESG investment opportunities in international comparison.     

Are investors really home-biased when investing at home?

Investors who only invest in their domestic market are typically referred to as being home-biased. We refer to firm-level internationalization and call into question whether investing in domestic stock indices actually leads to home bias. We use three measures of firm-level internationalization based on percentages of foreign sales, employees in foreign countries, and foreign tax payments. We aggregate firm-level results to determine the degree of internationalization of German, French, UK and US stock indices. French and UK stock indices exhibit the largest degree of internationalization. The German index provides slightly less internationalization, whereas internationalization of the US index is lowest but nonetheless considerable. This means that investors who invest in their domestic market do not necessarily suffer from home bias. Instead, investing in domestic stock indices more likely prevents investors from a home bias instead of entrapping them to insufficient portfolios.     

股票定价理论的发展及其对我国的适用性研究

股票价格的变动存在很多的不确定性,这些不确定性因素为股票的合理定价蒙上了一层神秘莫测的面纱。为揭开这层神秘的面纱,从股票市场诞生之日起,许多学就对这一课题进行了多方面、多角度的研究,从而形成源远流长、种类繁多的有关理论。本将就目前仍普遍流行并起主导作用的一些定价理论作一概述,并分析其对我国的适用性问题。     

Retail clientele and option returns

Does the retail clientele matter for option returns? By delta-hedging options and trading straddles, thus allowing a focus on volatility, this paper empirically shows that a higher retail trading proportion (RTP) is related to lower option returns. Long-short portfolios involving options on low and high RTP stocks generate significantly positive abnormal returns. The results suggest that retail investors speculate and pay a lottery premium on the expected future volatility, resulting in more expensive options with higher implied volatilities.     

机构持股、特质风险与股票收益的实证研究

机构投资者的投资行为对股票市场的风险与收益产生了极大的影响,机构投资者的大量参与有助于股票市场的稳定、特质风险的分散以及超额收益的减少。文章选取机构投资者持股占股票市值比例这一指标来刻画机构投资者的行为,检验机构持股比例、特质风险和股票收益之间的关系。实证发现,在中国股市,特质风险与股票收益呈显著的正相关关系;机构大量持股有助于降低股票的特质风险;机构投资者持股比例越低的股票,特质风险越大,股票预期收益越高。     

Speculative dynamics and price behavior in the Shanghai Stock Exchange

This article examines the extent to which the trading behavior of heterogeneous investors manifests in stock price changes of asset portfolios which constitute the Shanghai Stock Exchange. There are three major findings that materialize. Firstly, reliable statistical evidence of a negative relation between the conditional first and second moments of the return distributions of stock prices lends support to the volatility feedback effect. Secondly, ‘feedback’, or momentum-type investors, are not present in this market as is often detected from the daily price changes of other industrialized markets. Finally, trade volume as a proxy for ‘information-driven’ trading suggests that such investors play a statistically significant role in stock price movements. Parameter estimates from this latter group of investors imply that a rise in stock prices from a high volume trading day is more likely than a rise resulting from a low volume trading day.     

企业社会责任文本信息操纵与ESG评级分歧——基于自然语言处理技术的分析

以2011—2020年A股上市公司社会责任报告为样本,运用自然语言处理方法提取文本信息特征,考量企业社会责任文本信息操纵行为对ESG评级分歧的影响。结果显示：企业社会责任文本信息操纵程度越大,ESG评级分歧越大。机制检验发现,企业社会责任文本信息操纵会加剧信息不对称,加深第三方评级机构对私有信息的依赖,导致ESG评级分歧。鉴于此,建议制定统一的ESG信息披露细则,加强对企业社会责任信息披露的监管和验证。     

机构投资者对IPO定价效率的影响分析

本文通过对沪深两地1996～2006年A股市场IPO样本的研究发现：IPO抑价率与IPO政策变量及机构投资者参与程度显著负相关。机构投资者参与询价和发行配售，对IPO抑价率的降低起到了显著作用，有利于提高市场发行定价效率。总体上看，现阶段中国A股发行市场定价效率仍然偏低。高抑价率的主要原因在于行政管制使股票发行人和承销商的议价能力发挥不足，根本原因还在于发行制度市场化程度不高。     

Recognition versus Disclosure of Stock Option Compensation: An Analysis of Judgements and Decisions of Nonprofessional Investors*/CONSTATER OU PRÉSENTER PAR VOIE DE NOTE LA RÉMUNÉRATION SOUS FORME D'OPTIONS D'ACHAT D'ACTIONS: UNE ANALYSE DES JUGEMENTS ET DES DÉCISIONS DES INVESTISSEURS NON PROFESSIONNELS

Given the importance of stock options in the aggregate compensation of chief executive officers and other firm employees in the 1990s and early 2000s, the International Accounting Standards Board issued an International Financial Reporting Standard on stock‐based payments on February 19, 2004, requiring that all share‐based payment transactions be recognized at fair value in entities' financial statements. The Canadian Institute of Chartered Accountants' Accounting Standards Board had already agreed to this principle and amended section 3870 of the CICA Handbook (stock‐based compensation) for financial periods beginning on or after January 1, 2004, making Canada the first major jurisdiction to require all public companies to expense employee stock‐based compensation awards. The revised section eliminated the possibility of disclosing pro forma net income and earnings per share only by way of a note. This research, conducted as a between‐subjects experiment with executive MBA students as nonprofessional investors, examines whether changes in the way stock option compensation is reported (recognition as an expense in the income statement or note disclosure of pro forma net income and earnings per share) affect financial statement users' judgements and investment decisions. Our results indicate that, consistent with the functional fixation hypothesis, the reporting method does indeed significantly influence subjects' judgement of the expected stock price direction, but has no material influence on their investment decisions.     

When does attention matter? The effect of investor attention on stock market volatility around news releases

We empirically investigate how retail and institutional investor attention is related to the way stock markets process information. With a focus on 360 US stocks in the S&P 500 universe, our results show that higher retail investors’ attention around news releases increases the post-announcement stock return volatility, whereas institutional investor attention has a small but negative impact on volatility on days following news releases on average over the cross-section of companies. These findings are in line with the hypotheses that attention of retail investors slows price-adjustments to new information and attention of institutional investors results in the opposite reaction. We show that these effects are heterogeneous in the type of news and the topic of the information being released. A portfolio allocation application highlights that these results are not only statistically significant but also sizeable in economic terms and can lead to an overperformance as large as dozens of basis points.     

Corporate governance and private placement issuance in Australia

In this study, we examine the effectiveness of corporate governance in mitigating dilution in the economic and voting interests of existing nonparticipating (retail) shareholders in private placements. Based on a sample of 2420 private placements in Australia from 2001 to 2012, we find support for this proposition through the influence of corporate governance on pricing negotiation and firms’ choice of issuing method in private placements. Specifically, firms with better corporate governance offer private placements with a smaller discount, and are more likely to include a share purchase plan, which protects nonparticipating shareholders from ownership dilution in the placement.     

Foreign exchange risk and the cross-section of stock returns

We examine the relation between the cross-section of US stock returns and foreign exchange rates during the period from 1973 to 2002. We find that stocks most sensitive to foreign exchange risk (in absolute value) have lower returns than others. This implies a non-linear, negative premium for foreign exchange risk. Sensitivity to foreign exchange generates a cross-sectional spread in stock returns unexplained by existing asset-pricing models. Consequently, we form a zero-investment factor related to foreign exchange-sensitivity and show that it can reduce mean pricing errors for exchange-sensitive portfolios. One possible explanation for our findings includes Johnson's [2004. Forecast dispersion and the cross-section of expected returns. Journal of Finance, 59, 1957–1978] option-theoretic model in which expected returns are decreasing in idiosyncratic cashflow volatility.     

Information-based trade in the Shanghai stock market

We show that the probability of information-based trade (PIN) played a significant role in explaining monthly returns on Shanghai A shares over the period 2001 to 2006. In particular, PIN, as approximated by order imbalance as a proportion of total transactions, appears to explain returns even after controlling for risk in the much-cited Fama and French [Fama, E. F. & French, K. R. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, XLVII, 427–465.] three-factor model. However, we also find that some of the PIN effect appears to be indistinguishable from a turnover effect.     

Retail investors exonerated: the case of the January effect

We dispel the belief that the January effect is due to retail investor trading. Previous studies suggest that retail investors, affected by behavioural biases and disproportionally invested in small capitalization stocks, are the source of the January effect. Furthermore, the literature regards retail investor trading and the tax‐loss selling hypothesis as essentially the same explanation. We separate tax implications and market capitalization to show that retail traders are not the cause of the January effect. Our study is an important direct test of whether retail trading causes market anomalies.     

The volume–volatility relationship and the opening of the Korean stock market to foreign investors after the financial turmoil in 1997

This paper investigates the stock volatility–volume relation in the Korean market for the period 1995–2001. Previous research examined the impact of liberalization on the Korean stock market up to the period before the financial turmoil in 1997 although the crucial measures of the liberalization were introduced after the crisis under the International Monetary Fund program. One of the major features of the reformation was the financial opening to foreign investors. In this study the ‘total’ trading volume is separated into the domestic investors’ and the foreign investors’ volume. By doing this the information used by two different groups of traders can be separated. Further, in addition to the absolute value of the returns and their squares we use the conditional volatility from a GARCH-type model as an alternative measure of stock volatility. The following observations, among other things, are noted about the volume–volatility causal relationship. First, for the entire period there is a strong bidirectional feedback between volume and volatility. In most cases this causal relationship is robust to the measures of volume and volatility used. Second, volatility is related only to ‘domestic’ volume before the crisis whereas after the crisis a bidirectional feedback relation between ‘foreign’ volume and volatility begins to exist. In other words, ‘foreign’ volume tends to have more information about volatility in recent years, which suggests the increased importance of ‘foreign’ volume as an information variable.