Financial Management for the Future
Discover what our strategic research field Financial Management for the Future has been up to the past months.
Publications on the impact of the European Union Emissions Trading System
The EU Emissions Trading System (EU-ETS) is not only a hot topic in the environmental field. It also has repercussions in all other domains. Wouter Torsin has worked on 2 papers on the topic.
The first paper, co-written with Vincent Compagnie (HEC Liège) and Kristof Struyfs (Open Universiteit), published in the Journal of Corporate Finance, explores how polluting firms engage in corporate tax avoidance, particularly in response to significant changes in carbon prices. Their analysis indicates that the tax avoidance behavior among heavily polluting firms is influenced by their operating cost structure rather than their financing needs. They conclude that firms may attempt to offset carbon costs by minimizing their tax contributions, but effective monitoring mechanisms can help prevent such behavior.
The second paper, also co-written with Kristof Struyfs, Marie Dutordoir (Alliance Manchester Business School) and Frederiek Schoubben (KU Leuven), and published in Business Strategy and the Environment, explores how environmental pressure influences board gender diversity within firms. By focusing on the EU-ETS from 2013-2019, the authors find that firms with worse environmental performance are more likely to increase board gender diversity in response to heightened environmental pressure, particularly following a significant increase in emission prices after the European Council's intervention in 2017. This effect is stronger for firms with greater exposure to emission prices and lower pre-existing diversity levels, indicating a genuine shift towards more gender-diverse boards rather than superficial changes aimed at appearance. Their findings suggest that stricter environmental regulations can drive social and governance changes at the highest levels of corporate leadership, reflecting a broader trend towards more socially responsible governance practices in response to regulatory shifts.
Helping policymakers understand the dynamics of markets
Julien Hambuckers and Maren Ulm have published a paper in Economic Modellling on the role of interest rate differentials in the dynamic asymmetry of exchange rates. Their findings empirically support currency crash theories, suggesting that the larger the difference between interest rates, the more likely the high-yield currency appreciates on average, but also exhibits greater risk of a large depreciation.
Policy-makers can use this empirical evidence to better understand the dynamics of currency markets and potentially refine their approaches to interest rate adjustments and intervention measures. Additionally, the documented trading rule's superior performance suggests potential implications for investment strategies, which could be considered by policymakers when evaluating market interventions or designing regulatory frameworks.
Moreover, Caterina Santi published two papers on the behavior of financial markets. First, she published a paper on investor climate sentiment and its role in financial markets. Using data from StockTwits, she measured investors' positive or negative attitudes towards climate change that are not based on the facts at hand. She finds that stocks of carbon-intensive firms underperform low-emission stocks when investor climate sentiment is more positive, and part of the stock price reaction to investor climate sentiment is irrational. She also finds that climate-related events, such as the release of a report on climate change or abnormal weather events, facilitate the investor learning process and correction of the mispricing.
In a second paper, co-authored with Remco Zwinkels (Vrije Universiteit Amsterdam), they studied the consequences of intentional herding in investment styles by mutual funds. Unlike prior research that is centered on industry styles, this work focuses on investment styles like market, size, value, and momentum. This shift is significant as funds are typically categorized by their investment style, simplifying individual investor choices, and facilitating performance assessment against style-specific benchmarks. This paper shows that intentional herding is significant and persistent and increases after periods of high market volatility and decreases with sentiment.
New PDR Weave Project
Julien Hambuckers and his colleague Stephan Bruns (UHasselt) have just obtained funding for a new research project, sponsored by the FNRS and FWO through the WEAVE initiative. The main goal of the project will be to stress the reliability of empirical evidence presented in research articles in the field of finance. Indeed, as for other fields, reporting biases in academic publications constitute relevant concerns in finance, since empirical insights from this field serve as an input to decision makers in business and government. To do so, the project will develop new statistical tools to detect and measure the prevalence of this bias and investigate if it can be connected to financial conflict of interests of the authors, or with the language used in the publications.
New upcoming reference book in finance
Georges Hübner will release in April his upcoming book “The Complete Guide to Portfolio Performance: Appraise – Analyze – Act”, coauthored with Pascal François (HEC Montréal) and published by Wiley. The book positions itself as a comprehensive, state-of-the-art reference book about all aspects of portfolio performance for professional asset and wealth managers, but also finance students. The book, to be released in hardcover and ebook, benefits from the endorsement of Prof. William Sharpe, Nobel Prize Winner in Economic Sciences, and will be disseminated globally thanks to the support of Wiley, the world-leading publisher in Finance.
