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PCAM Research


The primary activity of the Kroner Center for Financial Research is funding novel research based on questions posed by our industry partners, and then disseminating this research. Papers listed here are not peer reviewed by the KCFR, they reflect the views of the authors listed with each paper.

2023 Kroner Center for Financial Research Funded Research

  • Benchmarking Benchmarks in the Pension Fund Industry
    (Richard Evans, University of Virginia, Juan-Pedro Gomez, IE University, Linlin Ma, Peking Univeristy, Yuehua Tang, University of Florida)
    Benchmarks enable the assessment of pension fund performance by retirees, regulators, elected officials and other stakeholders. These benchmarks are an important ingredient in determining the compensation of pension fund chief investment officers (CIOs), staff, and external fund managers, and therefore, of their associated managerial incentives. This work examines the benchmarks used by pensions.
  • Rethinking Private Markets as an Asset Class
    (Gregory Brown, Christian Lundblad, UNC Chapel Hill)
    Understanding the risk adjusted returns of funds across asset classes relies on how different investments, including private funds, are defined in terms of the asset class. In light of this, the authors examine different approaches to estimating fund risk adjusted returns to examine the costs and benefits of the approaches. The results of such an analysis would be useful to a wide range of stakeholders including investors, regulators, research academics, and teaching faculty.
  • Designing ESG Benchmarks
    (Anil Kashyap, University of Chicago, Natalia Kovrijnykh, Arizona State University, and Anna Pavlova, London Business School)
    Benchmarking is a prevalent feature in asset management. In particular, most fund managers are evaluated relative to benchmarks. The authors study an optimal design of benchmarks with an application to ESG benchmarks. They consider different motivations for ESG investing (either as returns maximization because these industries are expected to do well in the future or alternatively via a judgement of the harm the firm might be doing). These motivations impact optimal benchmarking, manager incentives, and firm behavior. Optimal design of ESG benchmarks are impacted by all of this.


2022 Kroner Center for Financial Research Funded Research

  • The Cost of ESG Investing
    (Laura Lindsey, Seth Pruitt, and Christoph Schiller, Arizona State University)
    This project seeks to answer the question: Can ESG portfolios be formed “for free,” and if yes, why? Using data from four major ESG providers, we construct ESG portfolios and find that ESG measures do not predict returns, given the rich conditioning information available to investors, so ESG factors can be used as an overlay on benchmark portfolios to downweight poor ESG firms without a reduction in performance.
  • Is There a Performance Penalty to Sustainable Bond Investing
    (Ji Min Park and Neil D. Pearson, University of Illinois)
    ESG research has focused almost exclusively on equities. The goal of this project is to provide evidence on the return penalty, if any, borne by an ESG-oriented fixed-income investor. We use each category, E, S, and G to categorize corporate bonds according to their ESG profiles. We then estimate the abnormal returns of the bonds using different benchmarks. We focus on the degree to which returns vary with the issuers’ ESG profile.
  • The Cost of Sustainable Investing
    (Hao Jiang, Michigan State University)
    We want to explore how shifts in investor tastes and demand drive the prices and returns of green and brown stocks. We will use global fund flows to estimate the impact of shifts in investors' preferences and price impacts on the two types of stocks. The implementation of the SFDR in Europe serves as a natural experiment to observe how investors reallocate funds in response to disclosures of whether a fund pursues a sustainable investment objective or not.


2021 Kroner Center for Financial Research Funded Research

  • Real Effects of Environmental Activist Investing
    (S. Lakshmi Naaraayanan, London Business School; Kunal Sachdeva, Rice U.; and Varun Sharma, London Business School)
    There is increasing pressure on pension fund managers to consider more socially activist investing. This work studies the real effects of environmental activist investing. Using plant-level data, the authors find preliminary results that targeted firms reduce their toxic releases, greenhouse gas emissions, and cancer-causing pollution. Improvements in air quality within a one-mile radius of targeted plants suggest potentially important externalities to local economies. These improvements may come through increased capital expenditures on new abatement initiatives. The study accounts for alternative explanations of decline in production, reporting biases, and forms of selection, while also providing evidence supporting the external validity of environmental activism. Overall, the study will examine if engagements are an effective tool for long-term shareholders to address climate change risks.
  • The Case for Actively Managed Funds
    (Allan Timmermann, UC San Diego and Russell Wermers, U. of Maryland)
    Should pension funds invest in more actively managed funds? The purpose of this study is investigating the efficacy of different management structures of pension funds, in the dimensions of
    1. active vs. passive management,
    2. internal vs. external management,
    3. public vs. private investments,
    4. the structure of liabilities (e.g., public vs. private pension funds), and
    5. interactions between these dimensions. The authors intend to use both public and proprietary datasets in our analysis. The goal is to provide timely research that informs major pension funds.
  • Environmental Externalities of Hedge Fund Activism
    (Pat Akey, U. of Toronto and Ian Appel, Boston College)
    Pressure on investors to practice environmentally sensitive investing makes sense only if it has a desirable impact. The authors propose to study how improving economic efficiency interacts with corporate environmental behavior and sustainability through the lens of hedge fund activism. Using plant-chemical level data from the EPA, they find evidence that activism campaigns are associated with a 17 percent drop in emissions for chemicals at plants of targeted firms. This decline in emissions is present in both chemicals that are known to cause harm to humans and those known to have adverse effects on the environment. These findings suggest that the benefits of activism are not necessarily confined to shareholders, but may also extend to other stakeholders (e.g., the local community) affected by firms’ emissions. In future work, the authors plan to highlight the extent to which “socially responsible” activism funds or climate-risk management strategies could explain these findings, as well as to further explore how activist hedge funds are able to improve productivity and reduce emissions.


2020 Kroner Center for Financial Research Funded Research

  • Strategic Asset Allocation
    (Redouane Elkahmi, U. of Toronto; Jacky S.H. Lee, HOOPP; and Marco Salerno, U. of Toronto)
    The views of institutional investors change in response to the macroeconomic landscape, thus impacting portfolio asset allocation. A top challenge for asset managers is overseeing these adjustments empirically with limited risk. This project analyzed the design of a strategic portfolio that is exposed to multiple risk premia and is resilient across multiple economic cycles.

    Key findings:

    • The authors provide a methodology that incorporates views on the likelihood of economic regimes (e.g., growth and inflation).
    • Using data on equities, bonds and commodities, they show both in simulation and empirically that the approach generates stable portfolio weights and a performance that is minimally affected by forecast errors.
  • Pension Fund Allocations to Private Equity and Portfolio Risk and Return
    (Arthur Korteweg, USC and Stavros Panageas, UCLA)
    Investing in private equity is becoming more prominent in institutional investing, but performance evaluation is difficult. This work provides a method to evaluate private equity investments by using investor-specific stochastic discount factors. The method allows a direct way of answering the question of whether a given investor could benefit from investing in private equity. The approach is illustrated by focusing on a particular category of investors, public pension plans.

    The authors investigate:

    • whether pension plans allocated optimal amounts to private equity investments;
    • whether the returns of these private equity investments could have been obtained by long-only strategies in publicly traded equities;
    • whether the private equity portfolio of pension plans outperformed investment private equity strategies and;
    • whether there are governance or other pension plan characteristics that correlate with risk-adjusted private equity performance or simply risk-taking.
  • Diversity and Inclusion and Portfolio Returns: Is there a trade-off?
    (Prashant Bharadwaj, Amanda Bauer, and Frances Lu, UC San Diego)
    Pension funds and public investors have re-evaluated the diversity of managers that invest their funds and the firms they invest in. This project focuses on analysis of alternative ways to gain exposure to a D&I factor and the effects of this on portfolio risks and returns. The authors create a new data set on “emerging managers” returns.

    Key findings:

    • Importance of diversity is justified theoretically and empirically.
    • When one cannot target diverse firms directly, emerging manager programs are a way to improve diversity.
    • No clear evidence of performance differences; no diversity-returns trade-off.
    • Emerging manager programs deliver on diversity goals.