Is ethical money financially smart? Nonfinancial attributes and money flows of socially responsible investment funds

We study the money flows into and out of socially responsible investment (SRI) funds around the world. In their investment decisions, investors in SRI funds may be more concerned with ethical or social issues than with fund performance. Therefore, SRI money flows are less related to past fund returns. Ethical money is less sensitive to past negative returns than are conventional fund flows, especially when SRI funds primarily use negative or Sin/Ethical screens. Social attributes of SRI funds weaken the relation between money inflows and past positive returns. However, money flows into funds with environmental screens are more sensitive to past positive returns than are conventional fund flows. Stock picking based on in-house SRI research increases the money flows. These results give evidence on the role of nonfinancial attributes, which induce heterogeneity of investor clienteles within SRI funds. We find no evidence of a smart money effect, as the funds that receive more inflows neither outperform nor underperform their benchmarks or conventional funds.     

Accounting for optimism and pessimism in expected utility

We provide a preference foundation for decision under risk resulting in a model where probability weighting is linear as long as the corresponding probabilities are not extreme (i.e., 0 or 1). This way, most of the elegance and mathematical tractability of expected utility is maintained and also much of its normative foundation. Yet, the new model can accommodate the extreme sensitivity towards changes from 0 to almost impossible and from almost certain to 1 that has widely been documented in the experimental literature. The model can be viewed as “expected utility with the best and worst in mind” as suggested by Chateauneuf, Eichberger and Grant (Chateauneuf, Alain, Eichberger, Jürgen, Grant, Simon, 2007. Choice under uncertainty with the best and worst in mind: NEO-Additive capacities. Journal of Economic Theory 137, 538–567) or, following our preference foundation, interpreted as “expected utility with consistent optimism and pessimism”.     

Exploring the landscape of wind farm developments; local area characteristics and planning process outcomes in rural England

Despite broad public support for wind energy in principle, windfarm developments are often met with local opposition. There is theoretical, case-based and anecdotal evidence to suggest that ‘the local’ is relevant for planning process outcomes, but the nature and extent of this relevance is not so clear. We embark on an initial exploration of local factors that, on aggregate, may be of relevance to planning outcomes of proposed windfarms in rural England. Applying a broad scanning approach we use an existing small area GIS dataset of 117 variables related to education, health, demography, employment and housing. We identify a number of strong associations, and discuss to what extent these make sense in the light of existing literature on environmental equity and social capital, or throw up questions for further study. Notwithstanding the methodological caveats of this explorative study, and the scope for more in-depth analysis, our findings suggests that beyond the myriad of individual planning cases, the emerging landscape of wind energy development in England is markedly uneven, and sometimes inequitable. Evidence of the latter emerges notably through the strong significance of local democratic deficit (i.e. low voter turn-out) as a predictor of a ‘positive’ planning outcome for windfarms and the further strengthening of predictive associations at the appeal stage.     

Foreign debt and capital accumulation

Zusammenfassung Devisenschuld und Kapitalakkumulation. — Eine offene Volkswirtschaft kann Kredit aufnehmen, um Kapital zu akkumulieren. In dem Beitrag wird der Fall der Auslandsverschuldung mit einem Szenario verglichen, in dem ein Land seinen Kapitalstock durch Konsumverzicht aufbaut. Die Inzidenz der Verschuldung auf das Zeitprofil des Konsums und der Verschuldung wird analysiert. Das Modell spezifiziert auch das Zeitprofil der Handelsbilanz. Die intertemporalen Opportunit?tskosten der Kreditaufnahme werden er?rtert, und es werden Bedingungen abgeleitet, unter denen sich die Verschuldung für Kapitalbildung und Konsum oder nur für die Kapitalbildung lohnt. Im Paradigma des Modells werden Konstellationen diskutiert, unter denen es für das verschuldete Land schwieriger wird, Zinsen und Tilgung zu zahlen.

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Résumé Dette étrangère et accumulation de capital. — Une économie ouverte peut emprunter á l’étranger pour accumuler du capital. L’auteur compare le cas d’un emprunt étranger avec un scénario dans lequel un pays accumule du capital en remettant la consommation locale. Il analyse l’effet de l’emprunt sur le profil de temps de la consommation et de la dette. Le modèle spécifie aussi le profil de temps de la balance commerciale. Les co?ts d’opportunité d’emprunter sont analysés et les conditions sont spécifiées sous lesquelles il est profitable d’emprunter pour l’accumulation de capital et/oú pour la consommation. Dans le contexte du modèle l’auteur discute quelques phénomènes qui le rendent plus difficile au pays débiteur de payer les intérêts et de rembourser les dettes et même de rompre le contrat de crédit.

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Resumen Deuda externa y acumulación de capital. — En una economía abierta un país puede endeudarse a los efectos de acumular capital. En este trabajo se compara el endeudamiento externo con una situación en la cual un país acumula capital internamente posponiendo el consumo. Se analiza el impacto del endeudamiento sobre el perfil temporal del consumo y de la deuda. El modelo también especifica el perfil temporal del saldo comercial. Se estudian los costos de oportunidad del endeudamiento y se derivan las condiciones bajo las cuales resulta beneficioso endeudarse para acumular capital y/o para consumir. En el contexto del modelo se discuten algunos fenómenos que podrían dificultar al país deudor el pago del servicio de la deuda y de la deuda misma, y que podrían inducir a cuestionar el contrato de crédito.

     

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Ohne Zusammenfassung     

Financial instability and the real economy

Summary The paper deals with three different areas of the financial sphere: national moneys, exchange rates and financial claims, markets and institutions. For each of them, it tries to identify the main forms of instability which may occur, their causes and consequences for the real economy. Depending on the area concerned, the forms of instability include inflation, fluctuations and misalignments in interest rates, exchange rates and asset prices and finally solvency and liquidity crises of institutions. It is concluded that, over the last fifteen years, significant progress has been made in the policy framework to counteract instabilities in the national and monetary spheres. The conclusion is more mixed with regard to the structure of financial markets.[/p]We are grateful to Julian Alworth, Svein Andresen, Gavin Bingham, Joe Bisignano, Michael Hutchison and Paul van den Bergh for useful comments.