The goal of this master's thesis is to investigate whether the ambiguous relationship between the sustainability of an ESG mutual fund and its performance is due to the fact that ESG mutual funds are subject to behavioral biases. The structure of this master's thesis is divided into three parts. First, it will be investigated if global ESG equity mutual funds domiciled in Europe are subject to the home bias, that is that a too large fraction of the equity investments is invested in domestic stocks. Furthermore, it will be investigated whether ESG mutual funds are subject to a Europe bias (whether a disproportionately large fraction of the equity investments is allocated to stocks from Europe) and finally whether ESG mutual funds are subject to the industry bias (their holdings are heavily allocated to individual industry sectors).
Secondly, the financial performance of ESG mutual funds in the period from August 2017 to August 2021 was examined using the Capital Asset Pricing model (CAPM) and the Carhart four-factor model like in the most important works on ESG mutual fund performance. Furthermore, it will be investigated whether the ESG mutual funds perform worse than their unsustainable counterparts (i.e. conventional investment funds via a matched-pair sample). Thirdly, it will be investigated whether behavioral biases have an impact on the performance of ESG mutual funds and lead to possible under-diversification.
Table of contents
I List of tables and figures
II List of abbreviations
1 Introduction
2 Theoretical background
2.1 ESG investing as a special form of investment
2.1.1 Fundamentals of investing, mutual Funds and fund managers in general
2.1.2 Conceptual delimitation and special features of ESG investing
2.2 Behavioral biases and their influence on investment decisions
2.2.1 Traditional finance vs Behavioral finance
2.2.2 Behavioral biases
3 Literature review
3.1 ESG investing
3.1.1 Sustainable investing and financial performance
3.1.2 Behavior of ESG investors
3.2 Behavioral biases and their potential role in ESG investing
3.2.1 Home bias and Europe bias
3.2.2 Industry bias
4 Hypothesis development
4.1 Behavioral biases of ESG mutual funds
4.2 Performance of ESG mutual funds
5 Data and methodology
5.1 Data and descriptive statistics
5.1.1 Data
5.1.2 Descriptive statisics
5.2 Methodology of measuring behavioral biases
5.2.1 Home bias
5.2.2 Europe bias
5.2.3 Industry bias
5.3 Performance measures
5.3.1 Capital-asset-pricing model
5.3.2 Carhart four-factor model
5.3.3 Characteristic based performance measure
5.3.4 Regression model
6 Results
6.1 Main results of behavioral biases in ESG mutual funds
6.1.1 Evidence of home Bias
6.1.2 Evidence of Europe Bias
6.1.3 Evidence of industry Bias
6.2 Main results of the performance analysis of ESG mutual funds
6.2.1 Performance measures
6.2.2 Impact of behavioral biases on ESG mutual fund performance
6.3 Robustness
6.3.1 Alternative measurement approaches
6.3.2 Sub-period performance
6.3.3 Performance before and after expenses
6.3.4 Robustness home bias
6.3.5 Robustness Europe bias
6.3.6 Robustness industry bias
7 Limitations
8 Conclusion
Appendix
References
I List of tables and figures
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Table A.1 Summary statistics of conventional mutual funds
Table A.2 Home bias of ESG mutual funds. Robustness analysis
Table A.3 Europe bias of ESG mutual funds. Robustness analysis
Table A.4 Industry bias of ESG mutual funds. Robustness analysis
Table A.5 The Refinitiv Business Classification
Table A.6 Performance of ESG mutual funds divided by countries
Table A.7 Conventional mutual fund performance divided by countries
Figure 1 Investor needs of conventional and ESG investors
II List of abbreviations
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"We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity." - Larry Fink (2021), CEO of Black Rock in his letter to the CEOs.1
1 Introduction
Scientists from different disciplines largely agree that climate change could have tremendous effects both on human society and global economic activity.2 For example, the International Energy Agency states that combating climate change will require up to 53 trillion United States dollar (USD) in energy supply and efficiency by 2035.3 Achieving this financial goal requires broader funding sources and scaled capital additionally to the financial resources of governments.4 These developments have led to an increasing attention to sustainable investments for politicians, investors but also the general public. Additionally to the financial criteria, sustainable investing integrates sustainability criteria into the investment analysis in particular environmental, social and governance (ESG) factors.5 Furthermore, the sustainable investing industry has reached significant growth in the last couple of years, both for retail and institutional investors. According to the Global Sustainable Investment Review (GSIR) (2020), which publishes data of sustainable and responsible investments of the five major financial markets,6 the sustainable investment industry increased by 15% in the years from 2018 to 2020 and reached 35,3 trillion USD. At the beginning of 2020, the sustainable investment assets under management (AUM) accounted for almost 36% of total AUM.7 Institutional investors dominate the financial market of sustainable investing by holding about 75% of total sustainable assets compared to retail investors.8 A very large proportion of ESG assets are actively managed mutual funds which account for about a quarter of all ESG assets in 2018 and have grown about 30% per annum (p.a.) in the last five years.9 Europe in particular is the market with the second highest proportion of sustainable investment assets after Canada, accounting for 42% of AUM.10 At the global level, the Paris Agreement, the Taskforce on climate-related disclosures, the Sustainable Development Goals and the United Nations Environment Program Finance Initiative have had a major impact on the positive development of the sustainable investing industry.11
The increasing economic and environmental relevance of ESG investments has led to more and more research on sustainable investments. Much of the research is concerned with the question whether ESG investments yield abnormal returns and perform better or worse than conventional investments.12 However, the results of both, theoretical and empirical studies, are ambiguous. That is, there are studies that find evidence for an overperformance of ESG investments, but at the same time there are other studies that find an underperformance and finally, some studies find no difference in performance compared to conventional investments.13 There are multiple empirical studies in the course of behavioral finance finding evidence that both, retail and institutional investors, deviate from a rational investment decision in systematic patterns.14 Those deviations in information processing and cognition of investors are called behavioral biases which can negatively affect investment decisions of both, retail and institutional investors by increasing idiosyncratic risk and deteriorate portfolio performance.15 However, those studies have almost exclusively been conducted for conventional investments and not for ESG investments. Hence, the goal of this Master's thesis is to investigate whether the ambiguous relationship between the sustainability of an ESG mutual fund and its performance is due to the fact that ESG mutual funds are subject to behavioral biases. Consequently, the structure of this dissertation is divided into three parts. Firsts, it will be investigated if global ESG equity mutual funds domiciled in Europe are subject to the home bias, i.e. that a too large fraction of the equity investments is invested in domestic stocks. Furthermore, it will be investigated whether ESG mutual funds are subject to a Europe bias (i.e. whether a disproportionately large fraction of the equity investments is allocated to stocks from Europe) and finally whether ESG mutual funds are subject to the industry bias (i.e. their holdings are heavily allocated to individual industry sectors). Secondly, the financial performance of ESG mutual funds in the period from August 2017 to August 2021 was examined using the Capital Asset Pricing model (CAPM) and the Carhart four-factor model like in the most important works on ESG mutual fund performance.16 Furthermore, it will be investigated whether the ESG mutual funds perform worse than their unsustainable counterparts (i.e. conventional investment funds via a matched-pair sample). Thirdly, it will be investigated whether behavioral biases have an impact on the performance of ESG mutual funds and lead to possible under-diversification.
2 Theoretical background
2.1 ESG investing as a special form of investment
2.1.1 Fundamentals of investing, mutual funds and fund managers in general
Investment is the commitment of non-consumable funds to assets that are considered to be competitive and wealth-enhancing. A mutual fund is a pool of assets for a capital association of several persons for the achievement of a common purpose.17 Accordingly, mutual funds are financial instruments in which investor's capital is pooled and afterwards invested by an investment company. In return the investor receives shares of the fund. The rationale behind investing in a mutual fund is that those funds enable investors to get access to diversified portfolios of securities in order to enjoy economies of scale.18 Investment funds are managed by asset management companies, which invest the money of the investors in accordance with the funds orientation and investment strategy.19 The mutual funds are often differentiated by their style such as small stocks, value stocks, growth stocks etc.20 Investments could be made as securities, like bonds or stocks, but also as real estate, commodities or other investment funds. Furthermore the transactions are monitored by a custodian bank.21
Mutual fund managers are institutional investors that invest on behalf of their clients or beneficiaries. They are motivated to meet the institutional goals and seek competitive returns. Mutual fund managers are required to act in the best interest of their beneficiaries which in turn depends on the goals and purposes of the investment and legal framework in which the fund operates. The task of the fund manager is to carry out risk-diversified and cost-effective investments of the overall portfolio in accordance with the statutory provisions and the fund regulations which has the ultimate goal of achieving an increase in value.22 Usually those actively managed funds charge higher expenses compared to "tracker" or "index funds", which mimic the movements in broad market indices, because of the work involved in the active management of the fund. The rationale for actively managed funds is that fund managers add value by using private information and managerial skill to produce a better performance than the market.23
2.1.2 Conceptual delimitation and special features of ESG investing
The modern definition of sustainability stems from the final report of the World Commission on Environment and Development in 1987.
"Sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs."24
To achieve this goal, ESG investing takes into account environmental, social and governance factors, additionally to the classic criteria of financial analyses.25 However, in the finance literature there is no general consensus regarding a clear definition and terminology of ESG investing.26 Typical terms used for ESG investing include social responsible investing (SRI), sustainable investing (SR), ethical investing, impact investing or valuebased investing.27 Renneboog et al. (2008) define sustainable investing as an investment approach that applies a set of investment screens in order to select and exclude assets based on ecological, social, corporate governance or ethical criteria contrary to conventional investments.28 On the other hand, the Global Sustainable Investment Review (2020) defines ESG investing as "an investment approach that considers environmental, social and governance factors in portfolio selection and management". To integrate ESG factors into investments several sustainable investment strategies are used which could be either used independently or, more frequently, combined with each other.29 Knoll (2002) highlights the duality of ESG investing by firstly noting that this investment strategy is not charity but investment, which suggests that there always needs to be a future benefit in exchange for giving up resources in the present. ESG investors therefore seek a profit and do not just give away their money.30 Caplan et al. (2013) on the other hand differentiate ESG investing in three main categories. First, social responsible investing (SRI) is a portfolio construction process that attempts to avoid investments in certain stocks or industries through negative screening according to defined ethical guidelines. Secondly, impact investing involves investing in projects or companies with the expressed goal of effecting an ethical mission related to social or environmental change. Thirdly, ESG investing integrates ESG factors into fundamental investment analyses to the extent that they are subject to investment performance.31 Those ESG factors are presumed to have financial relevance for investors because companies are ranked and rated according to their ESG performance through industry peer-comparison.32 A differentiation of investor decisions between conventional and ESG investors was made by Cengiz et al. (2010). While conventional investors base their investment decisions on the simple triangle of risk, return, liquidity, ESG investors base their investment decisions on the square of risk, return, liquidity and sustainability as displayed in Figure 1.33
This Master's thesis follows the predominant strand of research and thus uses the term ESG investing to describe the active task of investing in a sustainable manner.
Figure 1:
Investor's needs of conventional and ESG investors: Following Cengiz et al. (2010)
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ESG mutual funds are open-end equity funds which are actively managed by an investment company, integrating especially environmental, social and governance criteria in the selection process of the fund composition. Thus it is possible for individual investors to incorporate ESG considerations into their personal investment choices.34 All three pillars are interconnected and an attempt to achieve the best possible balance. The ESG approach establishes concrete criteria that individual companies can use as a guideline. They also allow companies to be compared and assessed by rating agencies. The three pillars of ESG investing according to Refinitiv Eikon 35 are described in the following section.
The environmental pillar (E) is divided into the sub-themes of a company's resource use, emissions and innovation. The efficient use of resources of a company is defined as its impact on the natural ecosystem when it produces goods and commodities (e.g in terms of energy, water, sustainable packaging and environmental supply chain). Another field of observation is the emissions (waste, biodiversity, environmental management systems) of a company and finally its innovation efforts (product innovation, research and development [R&D], capital expenditures).
The social pillar (S) covers the relationship between a company and its workforce, community, human rights and product responsibility. This dimension comprises efforts to maintain loyal workers through diversity, inclusion, career development and training, working conditions and health. Another field of this dimension is being a good citizen in the communities where it operates, to strengthen human rights and to show a high product responsibility (responsible marketing, product quality, data privacy).
The governance pillar (G) captures the management and its task to act in the best interest of its long term shareholders, which include the field shareholders, management and corporate social responsibility (CSR) strategy. The first field includes safeguarding shareholders rights and limiting anti-takeover defenses. Second, a functioning management board with experienced, diverse, and independent members, maintaining well designated executive compensation policies is included. A third theme of the governance dimension is the question of whether a company has a CSR strategy and transparency regarding the disclosure of ESG reportings.36
2.2 Behavioral biases and their influence on investment decisions
2.2.1 Traditional finance vs Behavioral finance
Traditional finance, also referred to as neoclassical finance, states that agents always act in a fully rational manner as described by the hypothetical concept of the homo oeconomi- cus. Those rational agents are not only efficient in information processing but also have stable preferences. Traditional finance theory is declared as a normative decision theory, which means that it is based on the assumptions of how investors and markets should ideally behave.37 The model of rational agents assumes that market participants always act in a benefit orientated manner, have complete information, try to optimize their own utility and are not prone to any behavioral anomalies.38 The traditional finance paradigm seeks to understand financial markets using models in which agents act rational. Rational choice theory is generally considered outdated in most economic settings. However, it might still be an appropriate concept to think about financial markets as these markets are not subject to many background "noises" like for example altruism, emotions etc. "Rational" in this context means that if investors receive new information they update their beliefs correctly in the manner according to Baye's law thereby making normatively acceptable choices consistent with subjective expected utility.39 However, in the 1970s there have been several empirical studies, which contradict the main assumptions of the traditional finance theory.40
Most famously, the psychologists Daniel Kahnemann and Amos Tversky developed a new field of economics, the concept of behavioral economics on the basis of which the sub-field of Behavioral Finance (BF) was developed, which calls into question the very foundations of traditional finance. The two scientists incorporated psychological evidence into economic research and developed the so-called Prospect Theory (PT) to better describe real world individual behavior under risk compared to traditional decision theory.41 BF can be therefore defined as a descriptive theory using psychology-based concepts to describe and explain investor behavior and market irregularities. The main assumption of BF is that people and the financial market deviate systematically from rationality. Crucially, those systematic deviations can harm investors' wealth. In a famous quote, Meir Stamann (1999) describes the core assumption about people in BF by noting that “people are rational in standard finance, they are normal in behavioral finance."42 While standard finance assumes a perfectly rational investor, behavioral finance describes an investor as a person who does not perfectly process all available information, is not perfectly informed and is not solely guided by economic motives.43 Instead the profile of market participants and information construction systematically affects the investment decisions of individuals and market outcomes. One can therefore say that BF attempts to provide an explanation of how emotions and cognitive errors of individuals affect their financial decision making process. Since the behavior of individuals and the market are closely linked in BF the theory tries to explain how people actually arrive at their decisions. The basis of BF is to find explanations how decisions are made in reality and make the behavior of individuals in concrete decision situations predictable.44
2.2.2 Behavioral biases
Starting from the Prospect Theory of Kahnemann and Tversky a number of other deviations from rational investment behavior were discovered. Those systematic deviations from rationality, which let people make seemingly irrational decisions, are designated as behavioral biases.45 Investors which are biased often make poor decisions about timing, trading frequency and fund style and expenses which can lead to poor portfolio perfor- mance.46 In the course of BF research a whole range of behavioral biases have been discovered over the years. However, there is much heterogeneity in the current literature concerning the definition of behavioral biases. Some authors treat behavioral biases as equivalent to heuristics47 (i.e. simple rules of thumb in information processing to simplify decision problems of people)48 whilst others refer to them as beliefs, judgements or pref- erences.49 Pompian (2012) defines behavioral biases as "perceptual distortions of individuals that lead to irrational behaviors and flawed decisions."50 Even if biased individuals could process information perfectly, they would not make fully rational decisions. The biases relate to how people process information and reach decisions according to their preferences.51 Baker et al. (2019) on the other hand define a behavioral bias as "the inclination of people to think or feel in a certain way that deviates systematically from rationality or a standard."52
In the investment context researchers have documented numerous behavioral biases of investors which might have a negative impact on their decision making process.53 At present there is a non-exhaustive list of behavioral biases available with over 50 of those biases potentially affecting individual investors' decision making process. Some of those biases overlap or conflict with each other and there is no common consensus about how to classify them into different categories.54 The most prominent classification scheme is to classify behavioral biases into cognitive and emotional biases.55 Cognitive biases are systematic patterns of deviation from rationality, which can cause irrational financial decisions by faulty cognitive reasoning and stem from collecting, processing and interpreting information. Those biases are mainly identified in cognitive psychology, the research field which deals with mental processes considered to form human behavior.56 The most common cognitive biases are conservatism bias, confirmation bias, hindsight bias, home bias, familiarity bias and framing bias.57 Emotional biases, in turn, are characterised by the fact that logical thinking is negatively influenced by emotions stemming from impulse or intuition. These biases can arise spontaneously as a result of feelings and attitudes and cause deviations from the rationality paradigm of traditional finance.58 The most common emotional biases are loss aversion bias, status quo bias, overconfidence bias, self-control bias, regret aversion bias and endowment bias.59 This Master's thesis will not attempt to discuss all identified biases but rather discuss three biases which may have an impact on the sustainable investing industry and in particular on the performance of ESG mutual funds, namely the home bias, the Europe bias and the industry bias. All three biases are based on the assumption that they cause portfolio performance to deteriorate and lead to under-diversification.
The home bias was first introduced by one influential study of French and Poterba (1991) and describes the tendency of investors to hold nearly all of their wealth in domestic assets despite the fact that they could diversify their portfolios and benefit from international diversification.60 The home bias is mostly measured by comparing the portfolio weighting of the investor's home country with the optimal weighting of the country according to the world market capitalization weight of it.61 Closely related to the home bias is the foreign bias, which describes the tendency of investors to overweight or underweight foreign markets.62
The Europe bias describes the overrepresentation of European assets in the investor's portfolio and was first mentioned by Oehler et al. (2008), who investigated the performance of German mutual funds in the years from 2000 to 2003. The Europe bias is measured by comparing the portfolio weighting of the investor in Europe with the optimal weighting of Europe according to the MSCI World All Country Index.63
The industry bias is the tendency to invest a disproportionate share of the portfolio in individual industries. It is measured by using the Industry Concentration Index (ICI) which is based on the difference between the industry weights of a mutual fund and the total market portfolio.64
3 Literature Review
3.1 ESG investing
3.1.1 Sustainable investing and financial performance
In ESG literature most research examines the performance of sustainable assets and tries to understand whether this type of investment is costly and affects the financial performance of a portfolio.65 While previous studies tended to focus on determining the relationship between the sustainability of an asset and its performance, recent studies examine the mechanism by which the sustainability of an asset can have an impact on the perfor- mance.66 Many of these articles on ESG investing are published in mainstream financial journals, representative of the increasing relevance of the topic.67 However, the results of both theoretical and empirical studies are mixed. On a theoretical basis Schmidheiny (1992) and Porter and Linde (1995) argue that if firms act in a more sustainable way they can save costs in the long term and achieve a competitive advantage. On the other hand, Friedmann (1970), Luken (1997) and Jensen (2002) conclude that it is impossible for a company to act in a more sustainable way and to become more profitable at the same time.68 They state that integrating ESG criteria into managerial decisions generates additional costs. Beyond the arguments about the relationship between sustainability of a company and its profitability, there are specific factors why ESG mutual funds should perform differently to conventional funds.69 According to the modern portfolio theory by Markowitz (1952), an ESG screened investment universe should reduce investment opportunities and the ability to diversify a portfolio. Mutual fund managers therefore face a smaller stock universe which should result in poorer performance by shifting down the efficient frontier.70 Another strand of literature argues that the higher costs of ESG mutual funds can explain the differing performance compared to conventional funds. The costs are composed of screening (i.e. to evaluate which stocks belong to the ESG universe) and actively managing the fund. The screening costs for ESG mutual funds are due to a lack of normalized and organized information systems at the company level much higher than for other investing universes (large cap, value stocks etc.).71 Bauer et al. (2005) argue that those extra costs of ESG mutual funds would lead to an underperformance in the short term but an outperformance in the long term compared to conventional funds.72
The ambiguous relationship between the sustainability of an investment and its performance is further exacerbated by different results of empirical studies.73 The studies can be divided into three groups based on their results: Some studies have found no difference in the performance of ESG mutual funds and conventional funds, while other studies have found evidence of either underperformance or outperformance. One group of researchers show that integrating sustainability criteria into the portfolio compilation has no significant impact on the mutual fund performance.74 Hamilton et al. (1996) investigated the performance of ESG mutual funds and found that those funds do not earn statistically significant excess returns and that their performance is similar to conventional funds.75 Also Bauer et al. (2005) analyzed the performance of 103 German, UK and US ethical mutual funds in the period of 1990-2001 using the Carhart four-factor model. The result of the study shows no evidence of significant differences in risk-adjusted returns between ethical and conventional funds.76 In another empirical study Bauer et al. (2007) examined the risk sensitivities and the performance of Canadian ethical mutual funds and compared them to their conventional peers. The authors find evidence that there is no significant differential concerning the performance between ethical mutual funds and their peers.77 Cortez et al. (2009) investigated the performance of ESG mutual funds from seven European countries with European and/or global investment focus.78 They confirm the results of Kreander et al. (2005), who also performed a comparative analysis of ESG European mutual fund performance and show that they perform similar to both, conventional funds and socially responsible benchmarks.79 Munoz et al. (2014) examined the financial performance and the managerial abilities of both European and US ESG mutual funds in the period from 1994 to 2013. They distinguished between normal and crisis market periods and showed that ESG mutual funds domiciled in the US obtain statistically insignificant performance in crisis periods and underperform compared to the market in normal periods. In contrast, European ESG mutual funds obtain statistically insignificant performance both in normal and crisis market periods. Regarding managerial abilities, the authors show that US ESG fund managers achieve better results in crisis market periods whereas fund managers in European markets achieve worse results.80 Utz and Wimmer (2014) confirm the findings that there are no profound differences in the financial performance of ESG and conventional mutual funds by analyzing a comprehensive sample of US mutual funds.81 Humphrey et al. (2016) analyzed the differences between ESG mutual funds and conventional funds in terms of the performance, fund style and managerial characteristics. They use a holding based performance evaluation approach and find no significant difference in the performance of ESG and conventional mutual funds.82 Hartzmark and Sussmann (2019) showed that investors value sustainability because sustainability is viewed as positively predicting future performance but they also could not find evidence that high sustainability funds outperform low sustainability funds.83 In another influential study Steen et al. (2020) investigated the relationship between Monrningstar's ESG ratings and the performance of Norwegian mutual funds. The authors divided the sample into ESG quintiles and neither found evidence of rating level effects nor any abnormal risk-adjusted returns.84 Furthermore, the largest meta-study to date by Friede et al. (2015), which investigated the relationship between ESG criteria and corporate financial performance by analyzing 2,200 individual studies, found that almost 90% of the studies showed a non-negative relationship between ESG criteria and corporate financial performance.85
Alternatively, some studies present evidence indicating that ESG investments perform better than their conventional counterparts. In one influential study Derwall et al. (2005) investigated the performance differences of two equity portfolios that differed in eco ef- ficiency.86 The authors found that in the period of 1995 to 2003 the high ranked eco efficient portfolio provided significantly higher returns than the low ranked portfolio and the difference could not be explained by industry specific factors, investment style or market sensitivity.87 Kempf and Osthoff (2007) examined the influence of socially responsible screens on investors portfolio performance and concluded that buying stocks with high ESG ratings and selling stocks with low ESG ratings leads to abnormal returns of 8,7% p.a. even after transaction costs.88 In another study Bollen (2007) analyzed the dynamics of investor fund flows in a sample of ESG mutual funds and showed that ESG mutual funds feature significantly lower monthly fund flow volatility compared to conventional funds.89 Statman and Glushkov (2009) analyzed the investment returns of ESG investors between 1992 and 2007 and found that they had an advantage over conventional inves- tors.90 In another influential study Young et al. (2019) analyzed the risk-return relationship of low-carbon investments and the specific characteristics of carbon efficient firms. For this purpose, they have determined on the basis of a self-created portfolio carbon efficient-minus-inefficient (EMI) portfolios, by carbon intensity and revenue adjusted greenhouse gas emissions at firm level. They found that the EMI portfolio creates a positive abnormal return.91 Duran-Santomil (2019) examined the effects of a high ESG score on European equity fund performance by using Morningstar's sustainability scores. They showed that a higher ESG score of an equity fund has a positive impact on its perfor- mance.92 Soler-Dominguez et al. (2020) investigated the relationship between portfolios of low carbon risk and financial performance from 3,920 ESG mutual funds from across the world. They confirm the results by Duran-Santomil (2019) and found that funds with higher sustainability scores perform better than those with greater exposure to companies in the carbon and fossil fuel industry.93
In contrast, there are various empirical studies, which found evidence that sustainable criteria have a negative effect on financial returns and conclude that ESG investments underperform. Filbeck and Gormann (2004), for example, investigated the relationship between the financial and environmental performance in electric utilities and found that there is evidence of a negative relationship between financial return and a more active measure of environmental performance.94 Brammer et al. (2006) found evidence that companies with high ESG scores in the UK are negatively related to stock returns. They showed that holding a portfolio with the socially least desirable stocks results in abnormal returns.95 Galema et al. (2008) related the returns, excess returns and book-to-market values of US portfolios to different dimensions of ESG performance and found evidence that ESG criteria lower the book to market ratio and harms portfolio performance.96 In another empirical study Hong and Kacperczyk (2009) showed that sin stocks, so publicity traded companies, which produce alcohol, tobacco and gaming, have higher expected returns than otherwise comparable stocks. Oestreich and Tsiakas (2015) showed that a more sustainable portfolio underperforms a dirty portfolio because firms with high carbon emissions have higher exposure to carbon risk and exhibit higher expected returns.97 Bannier et al. (2019) examined the profitability of investing according to ESG criteria in Europe and the US between 2003 and 2017. The authors found that a portfolio long in stocks with highest ESG scores and short in stocks with lowest ESG scores yields significantly negative abnormal returns.98
3.1.2 Behavior of ESG investors
Besides the performance studies there are various empirical studies investigating the characteristics, the motives and the investment patterns of both individual and institutional ESG investors. The reasoning of this literature strand is the assumption that ESG investors behave differently than conventional investors. The aim of the first empirical studies was to examine the characteristics (e.g. the demographics) of ESG individual investors to understand their behavior.99 For example Rosen et al. (1991) showed that ESG investors are better educated and younger compared to conventional investors and the general popula- tion.100 Lewis and Mackenzie (2000), in turn, investigated the investment behavior of 1,000 ESG investors from the UK and found that ESG investors are middle income professionals mixing ESG investments and conventional investments.101 Regarding gender, Hofmann et al. (2009) argue that women invest disproportionally more in ESG-related assets than men and Nilsson (2008) found that they generally invest a larger share of their overall portfolio in a sustainable manner.102 In the same vein, Tippet and Leung (2001) found that ethical investors in Australia are predominantly women who are young and better educated but on the other hand tend to hold less diversified and smaller portfolios than conventional investors.103
There are also a few studies investigating the financial and nonfinancial motives influencing the ESG decision with the main finding that both aspects have an impact on the investment decision.104 Since the group of ESG investors is heterogeneous, the two motives vary among them, which has an effect towards the risk tolerance of lower returns.105 Financial motives also play a role for ESG investors if they have optimistic risk return expectations.106 By investigating the motivation of individual investors to invest in ESG, Beal et al. (2005) found that especially financial returns, social change and non-wealth returns are the main reasons to invest socially. That means investors do not just value financial gains as received return but also the feeling that they do something for other people or contribute to a worthwhile cause.107 In another influential study Nilsson (2009) analyzed the reasons for investors to invest in ESG mutual funds. They found that ESG investors form a heterogeneous group consisting of three types of investors that are mainly driven by (i) financial reasons, (ii) mixed motives and (iii) primarily invest in ESG for altruistic reasons.108 Renneboog et al. (2011) stated that, contrary to conventional investors, ESG mutual fund investors are less influenced by past financial performance.109 Webley et al. (2001) have even found evidence that ESG investors hold on to their ESG investments even if they underperform their conventional counterpart.110 Riedl and Smeets (2017) partly confirm those results. They found evidence that ESG investors are more willing to pay higher management fees for ESG funds than for conventional ones and that a majority of investors expects ESG funds to underperform conventional funds. Assuming that ESG investors do not exclusively invest in sustainable assets due to financial motives there must be other reasons like social values to hold those assets. Lewis and McKenzie (2000) concluded that private investors, contrary to conventional investors, are less influenced by financial information and therefore make their investment decision on the basis of their values and ideology.111 McLachlan and Gardener (2004) investigated the factors that lead investors choosing ESG products in Australia by comparing conventional and ESG investors. They found that ESG investors differ significantly in their investment decision-making style, their ethical issues and their perceptions of moral inten- sity.112 Williams (2007) conducted a cross-country study and found that ESG investors are mainly driven by their belief system and the regulatory environment.113 In another influential empirical study Riedl and Smeets (2017) generally investigated the incentives to hold ESG mutual funds by combining survey data, administrative investor data and the behavior in incentivized experiments. Their main finding was that especially intrinsic social preferences and social signaling rather than financial returns play a crucial role to hold ESG equity. Investing in accordance with social preferences means to pay a premium to invest in a socially responsible manner. Social signaling is important for investors for reputational reasons and therefore to create a positive social image. They also stated that investors who talk more often about their investments are more willing to steer their holdings to ESG mutual funds and that ESG investments are not a substitute for charity donations.114
There are far fewer empirical studies on the motives and the investment behavior of institutional investors to invest in ESG securities than for private investors. The behavior of institutional investors to invest in ESG assets should differ from that of private investors due to their professional role in fulfilling fiduciary duties and their internal restrictions to follow organizational investment policies.115 Those duties include investors include the prioritization of the financial interests of their beneficiaries.116 Guyatt (2006) argues that institutional investors should therefore make defensible investment decisions which are based on conventional investment practises that rely on modern portfolio theory to reach their career goals.117 Cox et al. (2004) examined the preferences of UK institutional investors and their preference for ESG and found that long-term institutional investments are positively related to corporate social performance.118 Cowton (1999) states that the values and interests of ESG fund managers have a great influence in the selection process of ESG criteria and boundaries.119 Another influential study by Jansson and Biel (2011) investigated and compared the motives of private, institutional investors and investment institutions to invest in a sustainable manner. Their main finding was that fund managers were mainly guided by financial motives, while individual investors were more strongly affected by environmental and social values.120
3.2 Behavioral biases and their potential role in ESG investing
3.2.1 Home bias and Europe bias
There are many empirical studies in the last decades finding evidence for the home bias in investor behavior across different countries and investor groups. Evidence of the existence of the home bias can be observed all over the world. For the OECD countries French and Poterba (1991), Cooper and Kaplanis (1994) and Tesar and Werner (1995) found evidence for the home bias and Dziuda and Mondria (2012) report evidence for additional countries.121 The tendency of investing disproportionally into domestic assets was examined not just for equity and mutual funds but also for real estate (Imazeki and Gallimore 2009), bank loans (Presbitero et al. 2014) and bonds (Ferreira and Miguel 2011).122 In their first influential study on the home bias, French and Poterba (1991) studied actual portfolio holdings of six major countries and found that investors invested 95.7% domestically in Japan, 92.3% domestically in the US, 92% domestically in the UK and 79% domestically in Germany.123 A significant home bias of German mutual fund investors was confirmed by Oehler et al. (2008), who even found evidence for a Europe bias.124 Furthermore the home bias is prevalent for both, individual investors and mutual fund managers that are financially sophisticated or occupational pension fund managers.125 With regard to gender and age of investors, Barber and Odean (2001) found that men are more prone to the home bias than women, and older investors choose domestic stocks more frequently than young investors.126 Karlsson and Norden (2007) demonstrate that individual investors, which are affected by the home bias, are less financially sophisticated, have a secure job and tend to opt for safety.127
Most of the empirical research on home bias tried to examine the reasons why investors steer their holdings disproportionally to domestic assets.128 Potential explanations of the puzzling phenomenon range from institutional restrictions over informational reasons and behavioral factors. However there is no universally accepted explanation for the home bias, the portfolio decisions of most investors are probably driven by a mixture of the mentioned explanations.129 The first explanation for the home bias concerns transaction costs, taxes and barriers to international investments which may discourage people to invest more in foreign assets.130 Those institutional reasons have, however, been sufficiently refuted in the literature and play a minor role in explaining the bias.131 Another often mentioned and empirically-proven explanation of the bias are general information asymmetries between investors132 and informational advantages, which result from different accounting standards between countries.133 According to the theory of information asymmetry domestic investors have less information about the foreign markets and therefore hesitate to diversify their portfolio holdings internationally. Great fund managers could be successful in picking outperforming stocks in their home countries.134 In addition to the information asymmetries, there are also a number of behavioral explanations of the bias. Massa and Simonov (2006) and Bodnaruk (2009) state that familiarity of the assets may induce an informational advantage (e.g. domestic knowledge, networks, etc.) of investors which amplifies the home bias.135 Therefore, investors are more familiar with the nearby firms and have access to domestic knowledge.136 Dimmock et al. (2016) found that ambiguity aversion is positively related to the home bias, which suggests that the fear of the investors of the unknown manifests in the fact that the home bias is stronger exhibited during economically insecure times.137 In changing times retail investors and fund managers prefer to invest in better-known familiar assets.138 Strong and Xu (2003) and Solnik (2016) stated that a strong belief in domestic assets can explain the overinvestment in domestic stocks. Furthermore, there is evidence that loyalty139 and patriot- ism140 reinforce the bias.141
There are also various empirical studies regarding the relationship between the home bias and the performance of such portfolios. The results are mixed which implies that there is evidence that biased and concentrated investment structures can perform better or worse compared to well diversified portfolios.142 In one influential study by Shukla and van Inwegen (1995) the authors found evidence that domestic mutual fund investors from the US create higher returns and have a better portfolio performance than foreign investors.143 These results were confirmed by Hau (2001) for the German market and the reason was found to be the linguistic barrier.144 Kalev et al. (2008) conducted an empirical study of the home bias regarding the Finnish market and found that for internationally-listed stocks and in the short-run, domestic investor portfolios perform better than foreign investors due to informational advantage.145 Choi et al. (2017) concluded that information asymmetries can lead to better knowledge about investment opportunities and it can therefore be rational to hold a more concentrated portfolio in markets with information asymme- tries.146 In this course Dziuda and Mondria (2012) showed that fund managers who concentrated their holdings in the domestic market generated higher returns.147
On the other side there is empirical evidence which shows that home-biased portfolios underperform compared to well diversified portfolios. There are, for example, many studies which provide evidence that international diversification improves the portfolio per- formance.148 Grubel (1968) examined the advantages of international portfolio diversification for American investors. The result of the study showed that international diversification either led to the lowest portfolio variance or to the highest rates of returns.149 Building upon the study of Grubel (1968) and Levy and Sarnat (1970) found evidence that the gain of international diversification was substantial because they documented low coefficients of correlation between the returns on assets.150 Solnik (1974) concludes that a combined procedure with industrial and geographical diversification results in the best portfolio risk reduction.151 For the Finnish market Grinblatt (2000) found that foreign investors outperform domestic investors.152 Cohen (2009) showed that for individual US pension-plan-investors the home bias deteriorates the retirement income up to 20%.153 Pool e t al. (2012) stated that professional investors in the US which are prone to the home bias did not yield higher returns.154 The return losses induced by the home bias were also shown by Levy (2017) who stated that the bias is dependent on the different market correlations and that the home bias becomes significant if markets are not correlated.155
So far there is little actual empirical research examining if ESG investors are prone to the home bias. Bauer et al. (2006) provided new evidence on the performance and investment style of retail ESG mutual funds in Australia and found that those international funds reveal a strong and significant home bias.156 Gregory and Whitaker (2007) investigated the performance of UK ESG international funds and compared them to a control group of non-ESG funds in order to show that those funds invest disproportionally in domestic stocks.157 Those results are confirmed by Cortez et al. (2012) who investigated the performance and the investment style of ESG funds that invest globally and showed a significant home bias of European and US ESG funds.158
3.2.2 Industry bias
Various studies provide indications that ESG mutual fund portfolios disproportionally allocate their holdings in individual industries and are therefore less diversified. Tippet and Leung (2001) found that ethical investors in Australia tend to hold less diversified and smaller portfolios than conventional investors. There are a number of studies that examine the relationship between portfolio concentration and portfolio performance. Le Maux and Le Saout (2004) state that according to the modern portfolio theory by Markowitz (1952), an ESG screened investment universe should reduce investment opportunities and the ability to diversify a portfolio. Mutual fund managers therefore face a smaller stock universe which should result in poorer performance by shifting down the efficient frontier.159 Clow (1999) argues that ESG mutual funds face greater risk because of their selective approach which would cause a sector bias by restricting the number of investment areas.160 Merton (1987), on the other hand shows that a perfectly diversified portfolio is generally not efficient in the presence of incomplete information and that portfolios with concentrated information yield higher returns.161 The fact that actively managed mutual funds that focus on specific industries perform better than more diversified funds is also confirmed by one influential study of Kacperczyk et al. (2005). The researchers investigated the relation between the industry concentration and the performance of actively managed US mutual funds in the period between 1984 and 1999 and show that fund managers create value by concentrating their portfolios in industries where they got an informational advantage.162 Therefore, ESG investors and fund managers who only held ESG assets should benefit from more and concentrated information and obtain higher returns despite the under-diversification of their portfolio. Diltz (1995) argues that stock markets are so efficient and liquid that under-diversification would not have an effect on ESG portfolio performance.163
4 Hypothesis development
4.1 Behavioral biases of ESG mutual funds
In the previous chapter existing findings on the home bias of both individual and institutional investors were reviewed. Overall, the literature agrees that investors invest too much of their portfolio in their own home market and that this has a negative impact on portfolio diversification. While the home bias has been identified at the country level, for private and institutional investors, for real estate and for mutual funds, the empirical evidence for sustainable investments is still relatively scarce. However, there is much to suggest that ESG mutual funds are also subject to the home bias. First of all, the information hypothesis can be mentioned. According to the theory of information asymmetry domestic investors have less information about the foreign markets and companies and therefore hesitate to diversify their portfolio holdings internationally. So, mutual fund managers have more information about firms in their home country than from abroad and therefore tend to invest disproportionally in domestic firms. The same argument can be used for ESG investments. ESG fund managers get information about the sustainability of firms from their home country more easily and often do not have clear information about the ethical compliance of foreign firms because of asymmetric information.164 Another argument for the existence of the home bias in sustainable investing that reinforces the information hypothesis is that fund managers have private information because they are familiar with the nearby firms and have access to domestic knowledge or local net- works.165 This implicit knowledge allows ESG fund managers to verify whether a company is truly sustainable or just greenwashing. Also ethical reasons like the moral importance of supporting local economies and communities can be responsible for ESG mutual fund managers to hold ESG stocks located close to them.166 A behavioral explanation of the home bias is that investors are familiar with domestic companies. Patriotism and loyalty, might also explain the overinvestment in home assets. The same argument applies to fund managers of ESG mutual funds who predictably believe more strongly in ESG stocks of their home country. If previous studies find that conventional funds exhibit a local equity preference, the same might be true for ESG mutual funds. Hence, the hypothesis can be derived that sustainable investment fund managers invest a disproportion- ally share of their portfolio in companies where the fund is domiciled.
ESG mutual funds are prone to the home bias (H1).
Furthermore, it is possible that ESG mutual fund managers allocate a too large share of their portfolio to European equities. An explanation of this deviation from rational behavior is the introduction of the Euro at the beginning of 2000s and the increasing integration of the stock markets.167 Another reason of the growing popularity of the sustainable investment industry in the European Union (EU) is the enactment of international and domestic legislation for public enterprises. Large, relevant and public interest companies in the EU have to report additionally to their financial statement information about environmental, social and governance impacts of their activities. This regulatory revolution was initiated by the EU Directive 2014/95/EU and gives fund managers greater certainty about the validity of their sustainable investments.168 In addition, the publication of the Sustainable Finance Disclosure Regulation (2018), has led to the obligation of investment managers to incorporate sustainability risk in their investments and make sustainable strategies part of the expected practice of every financial product.169 Another reason for the Europe bias for ESG mutual funds, apart from the argument of regulatory aspects in the European Union, is the fact that ESG investment opportunities in Europe are greater than in the rest of the world, Canada excluded.170 For reasons mentioned above, it can be therefore concluded that European ESG mutual fund managers tend to overinvest in stocks from Europe.
ESG mutual funds obtain a Europe bias (H2).
Finally, the screening of sustainable investments can lead to the exclusion of certain companies from industries that are considered unsustainable, such as the oil and gas industry, the arms industry or nuclear energy. Another argument in favour of ESG fund managers concentrating their portfolios in certain industries that are considered sustainable is the fact that they might have an informational advantage for these industries. Kaczpercyk et al. (2006) found evidence that concentrated portfolios perform better than more diversified portfolios of conventional mutual fund managers.171 At the level of sustainable investments the informational advantage of fund managers might be used either to make sure that a company in a certain industry really does operate in a sustainable manner or how its financial performance is developing. Therefore, ESG mutual fund managers might disproportionally allocate their holdings to certain industries that are considered sustainable.
ESG mutual funds are biased towards individual industries (H3).
[...]
1 Cf. Fink (2021), p. 1.
2 Cf. Burke et al. (2015), p. 1.
3 Cf. International Energy Agency (2014), p. 3.
4 Cf. In S.Y. et al. (2015), p. 2.
5 Cf. Munoz et al. (2014), p. 552.
6 The five major financial markets are Europe, United States, Japan, Australasia and Canada.
7 Cf. GSIA (2020), p. 5.
8 Cf. GSIA (2020), 12.
9 Cf. Li et al. (2020), p. 2.
10 Cf. GSIA (2020), p. 5.
11 Cf. GSIA (2020), p. 13.
12 Cf. In et al. (2019), p. 1
13 Cf. Widyawati (2019), p. 628 f.
14 See e.g. Kahneman and Tversky (1979), French and Poterba (1991), Kaczpercyk et al. (2005), Oehler et al. (2008) among others.
15 Cf. Kumar and Goyal (2015), p. 89.
16 See Bauer et al. (2005), Climent and Soriano (2011), Renneboog et al. (2011) or Munoz et al. (2015) among others.
17 Cf. Jakob (2001), p. 7.
18 Cf. Cuthbertson et al. (2010), p. 96.
19 Cf. Elton et al. (2014), p. 18.
20 Cf. Cuthberston et al. (2010), p. 95.
21 Cf. Brauneis and Mestel (2015), p. 96.
22 Cf. Fung et al. (2010), p. 133.
23 Cf. Cuthbertson, p. 96.
24 Cf. Hauff (1987), p. 46; Mayer (2020), p. 3.
25 Cf. Mayer (2020), p. 130.
26 Cf. Wallis and Klein (2015), p. 63.
27 Cf. Sandberg et al. (2008), Caplan et al. (2013).
28 Cf. Renneboog et al. (2008), p. 1723.
29 Cf. GSIA, (2020), p. 7.
30 Cf. Knoll (2002), p. 689.
31 Cf. Caplan et al. (2013), p. 2.
32 Cf. Steen et al (2020), p.350.
33 Cf. Cengiz et al. (2010), p. 263ff.
34 Cf. Nilsson (2009), p. 6.
35 Refinitiv Eikon is a suite of software products providing access to industry-leading data on financial markets and infrastructure. Refinitiv (2021), p. 25.
36 Refinitiv, (2021), p. 10.
37 Cf. Pompian, (2012), p. 3.
38 Cf. Daxhammer and Fascar (2012), p. 20ff.
39 Cf. Thaler (2005), p. 1.
40 Cf. Kumar and Goyal (2015), p. 88.
41 Cf. Kahneman and Tversky (1979).
42 Statman (1999), p. 26.
43 Cf. Lekovic et al. (2020), p. 78.
44 Cf. Jurczyk (2002), p. 81.
45 Cf. Kumar and Goyal (2015), p. 89.
46 Cf. Bailey et al., (2011), p. 1.
47 Cf. Deaves and Ackert (2009), pp. 83 ff.
48 Cf. Goldstein and Gigerenzer (2002), p. 75 ff.
49 Cf. Coval and Shumway (2005), p. 5; Barberis and Thaler (2003), p. 11ff; Hirshleifer, (2001), p. 1539 ff.
50 Cf. Pompian, (2012), p. 43.
51 Cf. Shefrin (2000).
52 Cf. Baker et al. (2019), p. 43.
53 Cf. Pompian, (2012) p. 44.
54 Cf. Baron, (2007), p. 147; Baker et al. (2019), p. 42.
55 Cf. Pompian (2012); Baker et al. (2019); Kartini & Nahda (2021).
56 Cf. Baker et al. (2019), p. 44.
57 For a comprehensive overview of the mentioned cognitive biases see Baker et al. (2019), p. 41ff.
58 Cf. Pompian, (2012), p. 44-46.
59 For a comprehensive overview of the mentioned emotional biases see Baker et al. (2019), p. 77ff.
60 Cf. French and Poterba (1991), p. 222.
61 Cf. Chan et al. (2005), p. 1510.
62 Cf. Baltzer et al. (2013), p. 2823.
63 Cf. Oehler et al. (2008), p. 149ff.
64 Cf. Kacperczyk et al. (2005), p. 1985ff.
65 Cf. Maxfield and Wang (2020), p. 2; Revelli and Viviani (2015), p. 158.
66 Cf. In et al. (2019), p. 6.
67 Cf. Widyawati (2019).
68 Cf. Friedmann (1970), Luken (1997) and Jensen (2002).
69 Cf. Revelli and Viviani (2015), p. 161.
70 Cf. Le Maux and Le Saout (2004).
71 Cf. Revelli and Viviani (2015), p. 161.
72 Cf. Bauer et al. (2005).
73 Cf. Widyawati (2019), p. 628.
74 Cf. Widyawati (2019), p. 629.
75 Cf. Hamilton and Statman (1993), p. 62 ff.
76 Cf. Bauer et al. (2005), p. 1751.
77 Cf. Bauer et al. (2007), p. 111 ff.
78 Cf. Cortez et al. (2009).
79 Cf. Kreander et al. (2009), p. 573 ff.
80 Cf. Munoz et al. (2014), p. 551 ff.
81 Cf. Utz and Wimmer (2014), p. 1 ff.
82 Cf. Humphrey et al. (2016), p. 263 ff.
83 Cf. Hartzmark and Sussmann (2019), p. 2789 ff.
84 Cf. Steen et al (2020), p. 349.
85 Cf. Friede et al. (2015), p. 210.
86 Eco efficiency is defined as “the economic value a company creates to the waste it generates” Derwall et al. (2005), p. 51.
87 Cf. Derwall et al. (2005), p. 51 ff.
88 Cf.derKempf & Osthoff (2007), p. 1 ff.
89 Cf. Bollen (2007), p. 683 ff.
90 Cf. Statman and Glushkov (2009), p. 33 ff.
91 Cf. In et al. (2019), p. 1ff.
92 Cf. Duran-Santomil (2019).
93 Cf. Soler-Dominguez et al. (2020), p. 1751.
94 Cf. Filbeck and Gormann (2004), p. 137 ff.
95 Cf. Brammer et al (2006), p. 97 ff.
96 Cf. Galema et al. (2008), p. 2648 ff.
97 Cf. Oestreich and Tsiakas (2015), p. 308.
98 Cf. Bannier et al. (2019), p. 1 ff.
99 Cf. Widyawati (2019), p. 620; Rosen et al. (1991).
100 Cf. Rosen et al. (1991), p. 221 ff.
101 Cf. Lewis and Mckenzie (2000), p. 179 ff.
102 Cf. Hofmann et al. (2009), p. 105.
103 Cf. Tippet and Leung (2001), p. 44.
104 Cf. Anand and Cowton, (1993); Beal et al. (2005); Mackenzie and Lewis, (1999).
105 Cf. Cullis et al. (1992); Webley, Lewis and Mackenzie, (2001).
106 Cf. Riedl and Smeets (2017), p. 2506.
107 Cf. Nilsson (2009), p. 11.
108 Cf. Nilsson (2009), p. 5 ff.
109 Cf. Renneboog et al. (2011), p. 562 ff.
110 Cf. Webley et al. (2001), p. 27 ff.
111 Cf. Lewis and McKenzie (2000), p. 179 ff.
112 Cf. McLachlan and Gardener (2004), p. 11 ff.
113 Cf. Williams (2007), p. 43 ff.
114 Cf. Riedl and Smeets (2017), p. 2505 ff.
115 Cf. Jansson and Biel (2011), p. 137.
116 Cf. Mackenzie (2006).
117 Cf. Guyatt (2006).
118 Cf. Cox et al. (2004), p. 27 ff.
119 Cf. Cowton (1999), p. 60 ff.
120 Cf. Janssen and Biel (2011), p. 135 ff.
121 Cf. French and Poterba (1991), Cooper and Kaplanis (1994), Tesar and Werner (1995), Dziuda and Mondria (2012).
122 Cf. Ferreira and Miguel (2007).
123 Cf. French and Poterba (1991), p. 222.
124 Cf. Oehler et al. (2008), p. 149.
125 Cf. Shapira and Venezia (2001), Lippi (2016).
126 Cf. Barber and Odean (2001).
127 Cf. Karlsson and Norden (2007), p. 331.
128 Cf. Gaar et al (2020), p. 1.
129 Cf. Ardalan (2018), p. 962.
130 Cf. Black (1974); Michaelides (2003).
131 Cf. French and Poterba (1991); Glassman and Riddick (2001), p. 35 ff.
132 Cf. Coval and Moskowitz (1999, 2001); Dziuda and Mondria (2012).
133 Cf. Ahearne et al. (2004).
134 Cf. Stoffman and Yonker (2012).
135 Cf. Massa and Simonov (2006), Bodnaruk (2009).
136 Cf. Ivkovic and Weisbenner (2005).
137 Cf. Dimmock et al. (2016).
138 Cf. Rubbaniy et al. (2014), p. 978 ff.
139 Cf. Cohen (2009).
140 Cf. Morse and Shive (2011).
141 Cf. Strong and Xu (2003), Solnik (2016).
142 Gaar et al. (2020), p. 26.
143 Cf. Shukla and van Inwegen (1995).
144 Cf. Hau (2001).
145 Cf. Kalev et al. (2008).
146 Cf. Choi et al. (2017).
147 Cf. Dziuda and Mondria (2012).
148 Cf. Henrichi et al. (2017), p. 183.
149 Cf. Grubel, (1968).
150 Cf. Grubel (1968), Levy and Sarnat (1970).
151 Cf. Solnik (1974).
152 Cf. Grinblatt (2000).
153 Cf. Cohen (2009).
154 Cf. Pool et al. (2012).
155 Cf. Levy (2017).
156 Cf. Bauer et al. (2006).
157 Cf. Gregory and Whitaker (2007).
158 Cf. Cortez et al. (2012).
159 Cf. Le Maux and Le Saout (2004)
160 Cf. Clow (1999), p. 212 ff.
161 Cf. Merton (1987).
162 Cf. Kacperczyk et al. (2005), p. 1983 ff.
163 Cf. Diltz (1995).
164 Cf. Rhodes, (2010), p. 146 f.
165 Cf. Merton, (1987), pp. 483 ff. and Pool et al. (2012).
166 Cf. Chen and Nainggolan (2018), p. 99.
167 Cf. Oehler et al. (2008), p. 155.
168 Cf. Santamaria et al (2021), p. 1993.
169 GSIA (2020), p. 15.
170 GSIA (2020), p. 5.
171 Cf. Kacperzyk, (2006), p. 1984.
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