G11 Portfolio Choice; Investment Decisions
Refine
Year of publication
- 2024 (4) (remove)
Document Type
- Working Paper (4)
Language
- English (4)
Has Fulltext
- yes (4) (remove)
Is part of the Bibliography
- no (4)
Keywords
- Asset Allocation (1)
- ESG Investing (1)
- ESG ratings (1)
- Eurosystem collateral eligibility (1)
- Financial Crisis (1)
- Financial Stability (1)
- Insurance (1)
- Investment funds (1)
- MIFID (1)
- Portfolio Management (1)
This paper studies whether Eurosystem collateral eligibility played a role in the portfolio choices of euro area asset managers during the “dash-for-cash” episode of 2020. We find that asset managers reduced their allocation to ECB-eligible corporate bonds, selling them in order to finance redemptions, while simultaneously increasing their cash holdings. These findings add nuance to previous studies of liquidity strains and price dislocations in the corporate bond market during the onset of the Covid-19 pandemic, indicating a greater willingness of dealers to increase their inventories of corporate bonds pledgeable with the ECB. Analysing the price impact of these portfolio choices, we also find evidence pointing to price pressure for both ECB-eligible and ineligible corporate bonds. Bonds that were held to a larger extent by investment funds in our sample experienced higher price pressure, although the impact was lower for ECB-eligible bonds. We also discuss broader implications for the related policy debate about how central banks could mitigate similar types of liquidity shocks.
In this study, we unpack the ESG ratings of four prominent agencies in Europe and find that (i) each single E, S, G pillar explains the overall ESG score differently,(ii) there is a low co-movement between the three E, S, G pillars and (iii) there are specific ESG Key Performance Indicators (KPIs) that are driving these ratings more than others. We argue that such discrepancies might mislead firms about their actual ESG status, potentially leading to cherry-picking areas for improvement, thus raising questions about the accuracy and effectiveness of ESG evaluations in both explaining sustainability and driving capital toward sustainable companies.
In times of crisis, insurance companies may invest into riskier assets to benefit from expected price recoveries. Using daily stock market data for 34 European insurers, I investigate how a stock market contraction, as experienced during the Covid-19 pandemic, affects insurers’ decision on the allocation of their corporate bond portfolio. I find that insurers shift their portfolio holdings pro-cyclically towards lower credit risk assets in the first month of the market contraction. As the crisis progresses, I find evidence for counter-cyclical investment behavior by insurers, which can neither be explained by credit rating downgrades of held bonds nor by hedging with CDS derivatives. The observed counter-cyclical investment behavior of insurers could be beneficial for the financial system in attenuating price declines, but excessive risk-taking by insurance companies over longer periods can also reinforce stress in the system.
Looking beyond ESG preferences: The role of sustainable finance literacy in sustainable investing
(2024)
We assess how sustainable finance literacy affects people’s sustainable investment behavior, using a pre-registered experiment. We find that an increase in sustainable finance literacy leads to a 4 to 5% increase in the probability of investing sustainably. This effect is moderated by sustainability preferences. In the absence of moderate sustainability preferences, any additional increase in sustainable finance literacy is at minimum irrelevant, and we find some evidence that it might even reduce sustainable investments. Our findings underscore the role of knowledge in shaping sustainable investment decisions, highlighting the importance of factors beyond sustainability preferences.