Working Paper: CEPR ID: DP16477
Authors: Rui Albuquerque; Yrjo Koskinen; Raffaele Santioni
Abstract: This paper studies trading behavior of actively managed equity mutual funds comparing Environmental, Social and Governance (ESG) and conventional funds during a market collapse. Using monthly holdings data and the COVID-19 market crash as a quasi-natural experiment, we find that ESG funds maintained a stable share of their portfolio in ESG stocks in response to fund flows during the crash. In contrast, conventional funds, who experienced outflows the most, increased their net sales to flows for ESG and non-ESG stocks. Results are consistent with ESG funds catering to their clientele in market downturns, contributing to market stability for ESG stocks.
Keywords: Environmental and social responsibility; Clientele effects; Investor horizon; Fund flows; Stock market crash
JEL Codes: G01; G12; G23; G32; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ESG funds' loyalty to ESG stocks during downturns (G41) | ESG funds' loyalty to ESG stocks during downturns may stem from their clientele's preferences (G41) |
| ESG funds maintained a stable share of their portfolio in ESG stocks in response to fund flows during the COVID-19 market crash (O16) | ESG funds maintained a stable share of their portfolio in ESG stocks (G23) |
| conventional funds significantly increased their net sales of both ESG and non-ESG stocks (G23) | conventional funds significantly increased their net sales of both ESG and non-ESG stocks (G23) |
| conventional funds (G23) | acted as distressed sellers (G33) |
| conventional funds' trading behavior (G23) | exacerbated the market downturn (E44) |
| ESG funds (G23) | displayed greater resilience towards ESG stocks during outflows (F64) |
| the estimated sensitivity of net purchases to fund flows during the crash (G01) | ESG funds displayed greater resilience towards ESG stocks (G23) |