ESG factors are becoming mainstream in portfolio investment strategies, attracting increasing fund inflows from investors who are aligning their investment values to Sustainable Development Goals (SDG) declared by the United Nations Principles for Responsible Investments. Do investors sacrifice return for pursuing ESG-aligned megatrend goals? The study analyses the risk-adjusted financial performance of ESG-themed megatrend investment strategies in global equity markets. The analysis covers nine themes for the period 2015–2019: environmental megatrends covering energy efficiency, food security, and water scarcity; social megatrends covering ageing, millennials, and urbanisation; governance megatrends covered by cybersecurity, disruptive technologies, and robotics. We construct megatrend factor portfolios based on signalling theory and formulate a novel measure for stock megatrend exposure (MTE), based on the relative fund flows into the corresponding thematic ETFs. We apply pure factor portfolios methodology based on constrained WLS cross-sectional regressions to calculate Fama-French factor returns. Time-series regression rests on the generalised method of moments estimator (GMM) that uses robust distance instruments. Our findings show that each environmental megatrend, as well as the disruptive technologies megatrend, yielded positive and significant alphas relative to the passive strategy, although this outperformance becomes statistically insignificant in the Fama-French 5-factor model context. The important result is that most of the megatrend factor portfolios yielded significant non-negative alphas; which supports our assumption that megatrend investing strategy promotes SDGs while not sacrificing returns, even when accounting for transaction costs up to 50bps/annum. Higher transaction costs, as is the case for some of these ETFs with expense ratios reaching 80-100bps, may be an indication of two things: ESG-themed megatrend investors were willing to sacrifice ca. 30-50bps of annual return to remain aligned with sustainability targets, or that expense ratio may well decline in the future.
A cikk a megbízó és ügynöke közötti jövedelemelosztási kérdések teoretikus gyökereit kutatja. A megbízóügynök kapcsolatot jellemző információs aszimmetria és kölcsönös bizalmatlanság következtében szükség van olyan objektív, mérhető jövedelemkategóriák meghatározására, amelyek csak nagy erőfeszítésekkel manipulálhatók. Ezt az igényt a teljes körű elszámolás megvalósításával képzett jövedelem minden kétséget kizáróan kielégíti. Folyamatosan működő megbízó-ügynök kapcsolatokat feltételezve azonban ez az elszámolás a gyakorlatban szinte megvalósíthatatlan. Ebből kifolyólag, a megbízó-ügynök kapcsolatok esetében, olyan diszkrét időszakokhoz kötött jövedelemkategóriák használatára kényszerülünk, melyek a gyakorlatban is alkalmazhatók. Ezek a jövedelemkategóriák segítséget nyújtanak a megbízó és ügynöke által alkotott koalíció jövedelmének, és egyben az ügynök teljesítményének megbízható méréséhez. A cikkben választ keresünk arra, hogy az egyes jövedelemkategóriák milyen szinten elégítik ki a megbízó által támasztott objektivitási és manipulálhatatlansági kritériumokat. A cikkben részletesen tárgyaljuk az egyes jövedelemkategóriákhoz tartozó bizonytalanságokat és manipulációs lehetőségeket, valamint az ezek hatását elimináló természetes jelzések létét. A cikkben továbbá arra is választ keresünk, hogy a természetes jelzések mennyire torzítják az ügynök által közölni kívánt információkat.
Private pension funds were thought to be an important pillar of old-age provision when they were introduced throughout (Emerging) Europe. As different as these funds are in different countries with regards to their regulation, their ownership structure and operation, none were immune to the sub-prime led financial crisis. The Hungarian private pension funds are unique amongst the defined contribution (DC) funds. With their decade old recent history, they are maturing to the payout period in a few years’ time; however, their demise appears ever more realistic by means of political decision. This makes uncovering their investment policy during the crises very timely. Examining such a period is of importance in shedding light on the behaviour of traditional financial concepts in periods of stress. In this paper, we assess the optimality of diversification, hedging and short sales decision possibilities of the Hungarian pension funds in the equity investments environment. Was the net asset value (NAV) erosion suffered by the Hungarian private pension funds a result of their investment decision? We examine this question of diversification through a hypothetical simulation of model investment portfolios. Our results show that international diversification yields better risk-adjusted returns only in case of perfect hindsight of future market movements. The high correlation of the stock indices globally in times of crises limits the benefits of diversification.
The article uses pure factor portfolios formed by multivariate cross-sectional regressions to examine whether these active investment strategies could achieve excess return relative to passive strategies. The hypothesis can also be construed as a test of market efficiency. The study includes ten style factors. Our empirical study shows that a consensus buy strategy of the pure value factor yielded significant positive excess returns in the past almost 20 years. Size and momentum factors characterised in the literature by positive excess return are not significant in our study. Excess return of the factors capturing riskiness (earnings variability, volatility, leverage) is significant and negative, which corroborates with our expectations, rendering a consensus sell investment strategy successful, based on these factors. The profitability, growth and trading activity factors produced results contrary to our expectations; therefore, excess return could have been achieved via a contrarian selling strategy. Our research results are consistent with the weak form of market efficiency analyses.
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