Green Tilts

TL;DR: The authors assesses whether shareholders drive the environmental and social (E&S) performance of firms worldwide and finds that institutional ownership is positively associated with E&S performance with additional tests suggesting this relation is causal.

Abstract: We analyze institutional investors' preferences for stocks and the implications that these preferences have for stock-market prices and returns. We find that -- a category including all managers with greater than $100 million under discretionary control -- have nearly doubled their share of the common-stock market from 1980 to 1996 most of this increase driven by the growth in holdings of the largest one-hundred institutions. Large institutions, when compared with other investors, prefer stocks that have greater market capitalizations, are more liquid, and have higher book-to-market ratios and lower returns for the previous year. We discuss how institutional preferences, when combined with the rising share of the market held by institutions, induce changes in the relative prices and returns of large stocks and small stocks. We provide evidence to support the in-sample implications for prices and realized returns and we derive out-of-sample predictions for expected returns.

TL;DR: This paper found that stocks of firms with higher total carbon dioxide emissions (and changes in emissions) earn higher returns, controlling for size, book-to-market, and other return predictors.

TL;DR: Active Share as discussed by the authors is defined as the share of portfolio holdings that differ from the benchmark index holdings, i.e., the percentage of shares held by a portfolio holder that is different from the percentage held by the entire portfolio.