Do Fund Managers Respond to ESG News? Evidence from Portfolio Holdings and Investor Flows
|Speaker:||Yao Chen, University of Exeter Business School|
|Date: ||Wednesday 20 May 2020|
|Time: ||15:00 - 16:30|
Using artificial intelligence and big data generated ESG scores to capture ESG news sentiment shifts, we show that firm-level ESG news affects the investment choice of actively managed U.S. mutual funds. We find a positive relation between firm-level ESG news sentiment and mutual fund holdings. This relation is stronger among funds with better ESG ratings, higher marketing fees, retail-oriented clienteles, and following the introduction of Morningstar Sustainability Ratings. Fund managers’ responses to ESG news do not generate higher risk-adjusted returns but attract more flows. These results suggest that managers trade on ESG news to cater to investor flows.