Cambridge ESG Intelligence

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Institutional InvestorsESG

The Determinants of ESG Ratings: Rater Ownership Matters

Dragon Tang, Jiali Yan, Yaqiong Yao. Journal of Accounting Research.

Summary: Companies that share major institutional owners with an ESG rating agency tend to receive higher ESG ratings from that agency, particularly after the ownership connection is established. However, these higher ratings are not matched by better future ESG performance. The results suggest that ownership relationships can influence ESG ratings and may help explain why different rating agencies sometimes assess the same company very differently.

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ESGPublic FirmsStock Returns

ESG Rating Disagreement and Option Market Returns

Albert Fu, Vikas Raman, George Wang. Working Paper.

Summary: When ESG rating agencies disagree more about a company, investors become more active in options linked to that company and expect greater uncertainty in its share price. Greater ESG disagreement is also associated with lower subsequent option returns, especially when ESG issues receive more attention. These effects are strongest when options are more costly for financial intermediaries to hedge, suggesting that market frictions play an important role in how ESG uncertainty is reflected in option prices.

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ESGPublic FirmsTextual AnalysisArtificial Intelligence

Biodiversity Disclosure, Nature-Related Risk, and Institutional Investors

Feiyan Jiang, Yaqiong Yao, Qi Zeng. Working Paper.

Summary: Companies that disclose more about their impacts on and dependence on biodiversity tend to see lower institutional investor ownership in the following year. This suggests that investors may view biodiversity disclosure as a signal of greater nature-related risks, although this response became weaker after biodiversity issues gained more policy attention from 2021 onward. Overall, such disclosures appear to provide investors with financially relevant information about firms’ exposure to nature-related risks.

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Mutual FundsTextual AnalysisESGArtificial Intelligence

Beyond Greenwashing: ESG Disclosure Content and Investor Responses

Da Chen, Tao Shu, Yaqiong Yao. Chinese University Hong Kong Working Paper.

Summary: ESG messages from investment funds can attract more investor money, but the effect depends on what those messages actually say. Disclosures focused on financial benefits attract the most investment but are not followed by better ESG outcomes, while disclosures focused on positive social or environmental impact are linked to genuine improvements. Looking at the content of ESG disclosures therefore gives a clearer picture than treating all ESG claims as potential greenwashing.

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Stock ReturnsPublic FirmsESG

Valuation Effect of ESG: Market Sentiment or Growth Potential?

Xuerui Fang, Argyro Panaretou, George Wang, Frank Xu. Working Paper.

Summary: Companies with strong ESG performance can receive higher market valuations for very different reasons. For larger companies, the higher valuation tends to reflect stronger long-term growth prospects, while for smaller companies it is more often influenced by investor enthusiasm and market sentiment. The findings suggest that ESG creates more lasting economic value when higher valuations are supported by genuine business growth.

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ESGPublic FirmsStock Returns

The Price of Emissions: Carbon Risk in the European Equity Market

Lewei He, Harald Lohre, Ingmar Nolte, Yaqiong Yao. Working Paper.

Summary: Carbon regulation is increasingly reflected in European stock prices. Companies that are more exposed to future tightening of carbon rules, as well as those facing higher actual carbon-compliance costs, tend to offer higher stock returns. The findings suggest that investors consider both expected future regulation and the real costs companies already face when assessing carbon-related financial risk.

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ESGStock ReturnsPublic Firms

What Drives a Firm's ES Performance? Evidence From Stock Returns

Mark Shackleton, Jiali Yan, Yaqiong Yao. Journal of Banking and Finance.

Summary: Poor stock market performance can prompt companies to strengthen their environmental and social efforts. The improvements tend to come particularly in areas such as product responsibility and diversity, and are more evident among companies with greater financial flexibility, stronger customer visibility, and more active shareholder engagement on environmental and social issues. The findings suggest that stock market performance can influence how companies respond to environmental and social concerns.

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Hedge Funds

On the Other Side of Hedge Fund Equity Trades

Xinyu Cui, Olga Kolokolova, George Wang. Management Science.

Summary: Who is on the other side of a stock trade can matter. Hedge funds tend to perform better when they buy or sell stocks in the opposite direction from large, diversified institutional investors that trade relatively infrequently, while the same advantage does not appear when they trade against other types of investors. The findings suggest that differences in trading preferences, combined with hedge funds’ ability to identify attractive opportunities, help explain this pattern.

SSRN Publication

Institutional InvestorsESG

Corporate Social Responsibility and Insider Horizon

Mark Shackleton, Yaqiong Yao, Ziran Zuo. Journal of Corporate Finance.

Summary: Companies whose senior insiders take a longer-term view tend to perform better on corporate social responsibility. The evidence suggests this is more closely linked to stronger internal governance than to managers pursuing their own interests. The relationship is especially strong when firms also have long-term or socially responsible investors, longer-term pay incentives, and less pressure from potential takeovers.

Public FirmsStock Returns

Understanding Stock Price Behavior Around External Financing

Min Cao, Spencer Martin, Yaqiong Yao. Journal of Corporate Finance.

Summary: The common idea that share prices rise before companies raise money and then fall afterward does not apply equally to all firms. Companies with strong cash flow often see their share prices rise before financing and generally avoid large declines afterward, while weaker-cash-flow firms are more likely to suffer poor long-term performance after raising funds. Differences in profitability appear to be an important part of the explanation.

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Public FirmsStock Returns

The Value of Growth: Changes in Profitability and Future Stock Returns

Bryan Lim, Juan Sotes-Paladino, George Wang, Yaqiong Yao. Journal of Banking and Finance.

Summary: Companies whose profitability is growing faster tend to have higher future stock returns, but company size matters. The relationship is much stronger among smaller firms and becomes weaker as firms get larger, consistent with growth having greater scope to persist in smaller companies. The findings show that profitability growth and company size together help explain differences in future stock returns.

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Stock ReturnsPublic Firms

Time-Series Momentum in Nearly 100 Years of Stock Returns

Bryan Lim, George Wang, Yaqiong Yao. Journal of Banking and Finance.

Summary: Stocks that have performed well tend to continue performing well for a period, while poorly performing stocks tend to remain weak—a pattern found across nearly a century of U.S. stock-market data and also in international markets. The pattern persists across different types of companies and after accounting for common sources of investment risk. Alternative ways of applying this momentum approach produced even stronger historical results in the study.

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Public FirmsStock Returns

Macroeconomic Risk and Seasonality in Momentum Profits

Xiuqing Ji, Spencer Martin, Yaqiong Yao. Journal of Financial Markets.

Summary: Stocks that have recently performed well generally continue to outperform recent losers during most of the year, but this pattern changes sharply in January, when past losers tend to do much better. Differences in broad economic risk do not appear to explain this momentum effect particularly well, because those differences emerge mainly in January rather than when momentum profits are normally earned. Differences in company profitability provide a better explanation for this seasonal pattern.

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Mutual FundsHedge FundsStock Returns

Starting on the Wrong Foot: Seasonality in Mutual Fund Performance

Stephen Brown, Juan Sotes-Paladino, George Wang, Yaqiong Yao. Journal of Banking and Finance.

Summary: Active mutual funds do not underperform the market evenly throughout the year. Most of their underperformance occurs in the first month of each quarter, a pattern that appears across different fund sizes and investment styles. The evidence suggests that short-term reversals in stock prices and some quarter-end trading practices may help explain this unusual seasonal pattern.

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Stock ReturnsPublic Firms

Momentum, Contrarian and the January Seasonality

Yaqiong Yao. Journal of Banking and Finance.

Summary: Some well-known stock-market patterns turn out to depend heavily on what happens in January. The apparent success of buying long-term past losers is largely explained by unusually strong January returns among smaller companies, while January seasonality also helps explain why certain momentum strategies appear to outperform others. The findings show that seasonal effects can substantially change how investment strategies look when evaluated over time.

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